This week’s Chancellor’s Statement on the 2015 Budget made a limited number of changes to the Seed Enterprise Investment Scheme ("SEIS"), Enterprise Investment Scheme ("EIS") and the Social Investment Tax Relief ("SITR"). Positively, these changes signify the UK government’s ongoing support for these schemes (and therefore UK industry), the commitment towards their continuous improvement, and their required adjustment in light of changing European Union regulations. The following changes were made:

1)     Companies must be less than 12 years old in order to obtain EIS (or VCT) investment – this is done to ensure funding goes to companies that need it most.  After all, the purpose of SEIS and EIS is to support early stage companies. Companies that are over 12 years in operation need to show a “significant change” in business activities in order to qualify. This amendment to the EIS (and the VCT) is subject to State Aid approval.

2)     There is an increase in the employment limit to 499 employees for EIS companies.  This is done to ensure that companies continue their hiring and growth through the scheme.  Job creation and the associated improvement in citizens living standards is, after all, the underlying reason for the government supporting these schemes.  Again, this change is also subject to State Aid approval.

3)     The SEIS requirement of 70% of funds raised to be spent before beginning an EIS or VCT round of financing is being lifted. This is a great thing for small businesses as they can apply for both SEIS and EIS status from the onset and can go straight to market to raise the entire amount of financing they require by using both schemes.

4)     The total investment into companies under EIS (and VCTs) will be capped at £15 million; the cap is to be a little higher - £20 million – for knowledge intensive companies.

5)     The requirement that all investments are to be made with the intention to grow and develop a business and that investors are independent from the company at first share issue, was clearly stated in the 2015 Budget (i.e. if an investor wishes to be involved in a company in an official capacity, they must first invest (in order to obtain their SEIS or EIS tax relief) and then, afterwards, become a director).

6)     With regards to adopting Social Investment Tax Relief (SITR) from activities recently excluded from EIS/SEIS/VCT, the government is providing a transition period of six months before eligibility.  This change enables companies to adopt SITR without the fear of challenge. Say, for example, there was a community project that had originally obtained EIS status, but the activity was subsequently excluded.  The entity would have six months to obtain SITR status and avail of the associated investor benefits.  We have outlined the benefits of the Social Investment Tax Relief on a recent blog "Social Investment Tax Relief (SITR) - how does it differ from SEIS & EIS?".

7)     The regulatory status for SITR funds is also going to be changed in order for them to be promoted in the same way as EIS funds.  Stay tuned for details of this change that is to be announced in a future finance bill.

We would be remiss if we did not highlight that the Social VCT income tax relief is to be set at 30% (i.e. the same level as SITR) and the Social VCT will have the same excluded activities as the SITR.  Again, the details of this are to be announced in a future finance bill.

Once again, the UK government’s commitment to supporting early stage, start-up, and small companies was clearly and consistently communicated in this week’s Chancellor’s statement.  There really hasn’t been a better time to start a new business in the UK.

 

   

 

 

    Written by Vasiliki Carson

As a partner at Sapphire Capital Partners LLP, Vasiliki specialises in advising clients in regard to Patent Box as well as SITR, SEIS and EIS schemes, writing business plans and financial models for clients. Prior to co-founding Sapphire Capital, Vasiliki was with PwC and Goldman Sachs in Tokyo and New York. Contact her by email at vasiliki@sapphirecapitalpartners.co.uk or view Vasiliki's full profile here.