20th Feb 2018
Businesses outside London and the South-East are utilising the Enterprise Investment Scheme (EIS) at a far lower rate when compared to companies in the Capital, according to official HMRC data.
The official data shows that just 33% of investments through EIS were outside London and the South-East. That’s despite these regions representing 62% of the economy. Only £610m out of £1.9bn EIS investments went to businesses beyond London and the South-East.
The EIS is designed to encourage investment into UK businesses and it’s one of the only government-backed tax break schemes open to SMEs and early-stage companies. The scheme offers tax breaks to investors who buy new shares in the company. Since EIS was launched in 1993-94, 26,355 individual companies have received investment through the scheme, and £16.2bn of funds have been raised.
The disparity between London and the rest of the country seemingly hinges on a mix between lack of awareness and the byzantine nature of the process itself. “Having gone through the process, I found the system relatively difficult to navigate,” said Jeremy Hunt, the co-founder and CFO of InvestorConnected, an online platform for startups. “There are different types of help and it’s not clear what you should be applying for in what situation.
The EIS process is a case of ‘learn by doing’, Hunt explained. And it’s made much simpler when you’re based in London, surrounded by others who’ve gone through it already. “Once you’ve done it, it makes more sense,” he said. “And if you know someone who’s gone through it, it’s a big help. But if you don’t, you may need to incur costs. A lot of businesses don’t have the capital to just throw at raising funding.”
Hunt’s co-founder Thierry Clarke echoed his assessment. He explained: “If you look at the amounts that have been raised, the average amounts being raised in London are a lot higher than elsewhere. Startup capital is much smaller, therefore, people are less willing to spend as a percentage of that money on going through the process of EIS and SEIS funding.”
The process is also set up as a funnel, said Clarke. People go into the funnel with the Seed Enterprise Investment Scheme (SEIS, which targets seed and start-up investments of up to £150,000) and then migrate into EIS. But if you missed that step, you’ll find it hard, Clarke said.
According to Tim Fussell, a partner at Moore Stephens the lack of uptake outside London is “extremely concerning”, illustrating a widespread unfamiliarity with the EIS scheme beyond the Capital. “If regional economies are to compete with London and the South-East, schemes like the EIS need to be utilised to their fullest extent,” he said. “The latest statistics highlight that this is just not happening.”
About Francois Badenhorst
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