Changes to the Enterprise Investment Scheme (EIS) this week gained state aid approval from the European Commission, and more are on the way to stimulate investment in start-up businesses.
Chancellor George Osborne outlined amendments to the EIS and Venture Captial Trust (VCT) rules in the
March 2011 Budget to raise the rate of income tax relief available to EIS to investors from 20% to 30%; with Europe's approval, the new rate will be effective for investments made from April 2011.
The EU approval also opens the door for next year’s Finance Bill to extend the incentive schemes to companies of up to 250 employees and to those with less than £15m of gross assets. The annual EIS investment limit for individuals will now also be raised, from £500,000 to £1m, effective for investments made from April 2012.
Following the Budget announcements, the government also issued a
consultation document in July setting out further proposals to give additional support for seed investment through the EIS.
The consultation sets out a new scheme for investments into start-ups, Business Angels Seed Investment Scheme (BASIS), as well as minor tweaks to the existing EIS and VCT rules.
Despite concerns regarding additional red tape, BASIS will address problems faced by start-ups who need seed investment and to encourage business angels to invest. Using the existing EIS as a blueprint, the BASIS will target investment from angel at the seed-stage of a company’s development. The latest proposals set out critieria that to restrict the relief to "seed stage" businesses at the pre-trading stage.
Among the simplification proposals, the paper explains that the definition of ‘eligible shares’ for VCT investment was relaxed last year to include preferential rights to income and assets, and now wants to replicate that definition for EIS, so that companies looking to receive investment via both schemes would not have to work with different definitions of qualifying shares.
The deadline for the latest consultation round is 28 September (Wednesday) and in line with the Coalition government's new approach to tax policy making, draft clauses incorporating the refinements are likely to be published on 6 December for inclusion in the Finance Bill 2012 next spring.
Anyone wishing to comment on the latest round of consultation can do so via email to: [email protected]