As the “Chancellor Bets the Economy on Growth” shared by Partner Pamela Muir, investors focus on the continuation of the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).
Prior to the Chancellor, Kwasi Kwarteng’s maiden mini budget, investors warned of the impact that the end of the schemes would have brought upon its previously proposed expiry in April 2025. However, Kwarteng announced on 23 September 2022 that both schemes will continue, and in some areas will be widened to stimulate investment in early stage companies.
What are the schemes?
The Enterprise Investment Scheme (EIS) is a venture capital scheme operated by the UK Government to help companies raise funds through offering tax reliefs to investors. The EIS scheme can support a company in raising up to £5m annually, with a maximum permitted raise of £12m through the scheme over a company’s lifetime.
The Seed Enterprise Investment Scheme (SEIS) is similar, but focused primarily at companies who are at the outset of trading, currently permitting them to receive a maximum of £150,000 through the scheme.
What does the mini-budget change?
Whilst the SEIS scheme does set restrictions on which companies can access the relief, the recent mini budget has sought to widen the scope of eligibility. The changes are due to come into force in April 2023, improving accessibility to SEIS by increasing the maximum amount a company will be able to raise to £250,000; an increase by two-thirds on the current figure. The scheme also lifts the restriction on the value of assets that a company may hold pre-investment to a total of £350,000, and the age limit of the investee company from two to three years from incorporation. With a focus on ensuring SEIS is fully utilised, the investor annual limit will also increase to £200,000. The Government suggests that this will help over 2,000 young companies a year that use the scheme to grow.
What does this mean for companies & investors?
Whether the mini budget will deliver on its title of ‘The Growth Plan’ remains uncertain, but investor woes and concerns may be at least partially reassured by the commitment to and expansion of the SEIS and EIS schemes, which have been part of the UK investment landscape since 1994. Furthermore, the opening of limitations on the SEIS programme will hopefully enable investors to increase their funding of early stage companies and support growth in this area.
From an investee company perspective (of which there are 3,755 already benefiting from the £1.6bn of SEIS funds raised in the year ending April 2021), the changes announced by the Chancellor should provide some reassurance that the current Government is committed to continued early stage investment and growth. The expansion of SEIS should allow companies to reap the benefits for longer and potentially receive further investment from a more incentivised investor pool. These changes may provide a small amount of reassurance in a time of otherwise economic concern and uncertainty.
Insight from Lewis Quinn, Ventures and Innovation Team, Corporate & Commercial Associate at Thorntons. For more information contact Lewis on 03330 430350.