The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are unknown quantities for many UK entrepreneurs, research finds.
More than 25 per cent say they have never heard of EIS, with 35 per cent saying they are not aware of the EIS tax relief benefit available to investors, according to a study of 1,000 businesspeople by E2Exchange.
Some 60 per cent have not used EIS to raise funds for their business or as an investor, and more than 40 per cent say they had never heard of the SEIS scheme.
Half of respondents say they are not aware of the SEIS tax relief benefits available to investors and almost 90 per cent have not used SEIS to raise funds for their business or as an investor.
Close to 60 per cent do not know the difference between EIS and SEIS.
Many cite the fact that neither their banks nor their financial advisers have mentioned the schemes and that more should be done to promote EIS and SEIS.
A number of respondents say that they thought the schemes are only available to passive investors when in fact an owner-manager can qualify for the scheme, providing that they are a director of the company and certain other conditions are satisfied.
Also, according to entrepreneurs, the sectors to which EIS and SEIS apply are too narrow and should be extended, particularly with regard to asset-backed businesses such as hotels and residential care comes.
Furthermore, respondents say that the limit of £150,000, which can be raised through SEIS over three years, is too low and does not allow them to raise the funds necessary to start their business.
E2Exchange proposes four clear measures to increase the attractiveness of EIS and SEIS and boost their popularity and effectiveness in helping entrepreneurs, including providing relief on debt as well as equity, improving the preferential rights in EIS and SEIS, widening sector eligibility and doubling the maximum that a company can raise under SEIS.
E2Exchange proposes four clear measures to increase the attractiveness of EIS and SEIS and boost their popularity and effectiveness in helping entrepreneurs:
- Provide relief on debt as well as equity – splitting the current tax reliefs of EIS and SEIS between the two would offer a more attractive incentive for investors;
- Improve the preferential rights in EIS and SEIS — allow preference share holders normal cumulative rights to dividends if they are not paid in early years and preference in liquidations;
- Widen sector eligibility — end anomalies such as pubs qualifying while hotels/residential care homes do not, and extend to more asset-backed sectors;
- Double the maximum that a company can raise under SEIS – the current total of £150,000 is too small for many entrepreneurs looking to raise funding.
Adrian Walton, tax partner at accountant Smith & Williamson says, ‘The relative lack of awareness of EIS and SEIS evidenced from the survey results is concerning, although not totally unsurprising in the case of SEIS as the scheme only started in April 2012.
‘For those individuals and businesses that do use the schemes, a recurring comment is that the rules are too restrictive both in terms of the types of trading activities that qualify, and the nature of the securities that can be issued to investors under the schemes.’