Investment cash raised by UK firms plunges 12% as tax rules change

The number of UK firms applying for investment through the Seed Enterprise Investment Scheme, a Government tax relief designed to encourage investment in small, early-stage companies, is rising at a ‘painfully slow pace’, according to the Institute of Directors.

Meanwhile, Revenue & Customs has revealed the amount raised by companies using the Enterprise Investment Scheme tax relief fell 12 per cent in 2015-16.

Its figures, released on Thursday, also showed that the number of SEIS applications in 2016-17 was 3,150 – only 35 more than during 2015-16.

Jamie Kerr, head of entrepreneurship and tech policy at the Institute of Directors, said: ‘The number of UK companies applying for permission to receive investment through the SEIS is rising at a painfully slow pace. This relief, alongside its older brother the EIS, has been a welcome addition for start-ups looking to raise funds, but we believe more value can be squeezed out of the scheme.

‘The overall low number of applications for SEIS eligibility will prompt questions about whether more can be done to market their benefits to the wider business community.

'It is an example of a policy that the next Government should push much more heavily if it wants to boost entrepreneurship in the UK. The take-up of SEIS and EIS is also still skewed towards London and the South East.’

In 2015-16, 3,285 firms raised £1.65billion via EIS, down from £1.88billion the year before.

Ray Abercromby, a partner at accountancy firm Smith & Williamson, said: ‘We are seeing the changes from the summer Budget 2015 take effect. The alterations themselves weren’t too hard hitting, but the constant tinkering of these Government-backed tax schemes is causing uncertainty for small businesses and investors.

‘Businesses and investors now have to pay very close attention to the structure of their company. The changes have forced individuals, who just want to grow their business, to focus on the structure of their business in case they accidentally fall foul of the rules.’

In July 2014, the Government launched a consultation on tax-advantaged venture capital schemes. It then announced in the summer Budget 2015 that it would introduce a series of changes to place a greater emphasis on supporting innovative firms, while continuing to provide targeted support for growing firms, in line with new state aid rules.

Last week, a Federation of Small Businesses survey revealed that 59 per cent of small businesses with EU workers are worried about accessing people with the right skills post-Brexit, while 54 per cent are worried about growing their business.

Its report found 21 per cent of small employers have EU staff. Of those, 72 per cent recruited all of their EU workers when they were already living in the UK. And 95 per cent of small firms have no experience using the UK’s points-based immigration system to recruit non-EU workers.