Why do companies outside of London not use EIS?

More than half of businesses who have received EIS investment are based in London, despite only making up a quarter of the economy.

Research shows that the Enterprise Investment Scheme (EIS) is worryingly under-utilised by businesses outside of London and the South East, says Moore Stephens.

Official data shows that just 33 per cent of investments through the Enterprise Investment Scheme (EIS) were outside of London and the South East, despite these regions representing 62 per cent of the UK economy.

Only £610 million out of £1.9 billion EIS investments went to businesses in regions outside of London and the South East.

Moore Stephens says it is worrying that businesses in regions whose economies are lagging far behind London and the South East are not taking advantage of this government tax break. Both central and regional governments could proactively encourage more businesses to take up relief schemes such as the EIS to help grow their local economies and close the wealth gap with London and the South East.

The EIS is designed to encourage investment into UK SME’s and is one of the only government-supported tax break schemes available to SMEs and early stage companies. The scheme offers tax breaks to investors who buy new shares in the company.

Companies that have benefited include Innocent, the smoothie manufacturer, and Chapel Down, the UK wine producer. Innocent were later bought by Coca Cola for an estimated £100 million after raising capital through the EIS. Chapel Down have seen their turnover grow to £11.6 million in 2017 after an initial investment made through EIS.

Moore Stephens says that SMEs outside of London and the South East looking to grow their businesses to the next level may be missing out on a vital source of funding. The statistics suggest that in many parts of the country, businesses are not aware of the scheme.

Moore Stephens says there is a low level of knowledge outside of London partly because there are fewer corporate finance and advisory companies in those areas.

For example, businesses in the North East and North West of England only claimed 6 per cent of the total amount of EIS combined, despite the regions making up 13 per cent of the UK economy. Scottish businesses only received 3 per cent of EIS funds.

It is an identical picture with the Seed Enterprise Investment Scheme (SEIS), aimed at start-up businesses, where regions outside of London and the South East only attracted 34 per cent of all investments.

Moore Stephens says that is important SMEs outside of London are made aware of the scheme, particularly in regions where the government is desperate to deliver more economic growth.

Tim Fussell, partner at Moore Stephens, says, ‘It is extremely concerning that SMEs outside of London are failing to take advantage of the EIS break.

‘If regional economies are to compete with London and the South East, schemes like the EIS need to be utilised to their fullest extent. The latest statistics highlight that this is just not happening.

‘Regional growth projects such as the Northern Powerhouse could really benefit from increased use of schemes. It is vital the government promotes the EIS and that business owners make themselves aware of it, so its benefits are felt across the UK.’

Further reading on EIS

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