The UK has led the European continent in economic growth and Fintech innovation. This welcomed phenomenon is due, in part, to a culture of entrepreneurism and a supportive government. One important catalyst in the growth equation are the tax incentives available to early and mid-stage companies. The Enterprise Investment Scheme (EIS) and Seed Investment Enterprise Scheme (SEIS), mitigate some of the investor risk when backing young companies. Any investor on a UK crowdfunding platform understands, both EIS and SEIS are valuable considerations when investing in young firms. Driving early investment into younger, riskier firms is vital to fostering an innovation based economy and, correspondingly, creating new jobs.
Mark Brownridge, Director General of the EIS Association – the entity that advocates on behalf of these tax benefits, is out with a comment on the Conservative election manifesto and possible new EIS and SEIS incentives for digital businesses. He believes that SEIS and EIS may be lined up for a positive makeover.
The Conservative Manifesto states:
Britain’s future prosperity will be built on our technical capability and creative flair. Through our modern industrial strategy and digital strategy, we will help digital companies at every stage of their growth. We will help innovators and startups, by encouraging early stage investment and considering further incentives under our world-leading Enterprise Investment Scheme and Seed Enterprise Investment Scheme. We will help digital businesses to scale up and grow, with an ambition for many more to list here in the UK, and open new offices of the British Business Bank in Birmingham, Bristol, Cambridge, Edinburgh, Manchester and Newport, specialising in the local sector. As we set out in chapter one, we will ensure digital businesses have access to the best talent from overseas to compete with anywhere in the world. This will be complemented by at least one new institute of technology in the UK, dedicated to world-leading digital skills and developed and run in partnership with the tech industry. When we leave the European Union, we will fund the British Business Bank with the repatriated funds from the European Investment Fund.
Brownridge believes the portion about “considering further incentives” regarding EIS and SEIS is indicative of good things to come.
The EIS Association has been campaigning for improvements to EIS and SEIS for some time and he hopes policymakers will include improvements not just for digital innovators but all sectors of the UK economy. Brownridge states;
“… wouldn’t such incentives be more effective if entrepreneurs and businesses from across a broad spectrum of sectors benefited from them, not just from a niche segment? While we would all like to see the UK produce the next Amazon, Google or Facebook, might it be that we have been somewhat seduced by the idea of creating our own Silicon Valley (though, in an unmistakably English way, our version is part-centred on a London roundabout), and so are focusing too much on tech start-ups, when one of the real challenges is helping small businesses in general, wherever they are in the country and regardless of their sector, to successfully reach the ‘scale-up’ stage?”
Brownridge says the OECD ranks the UK as being in 3rd place in the world for startups but only 13th place for scale ups – defined as employing at least 10 people and revenue growth of at least 20% for three years or more. Brownridge predicts that increasing the number of scale-ups by 1% could result in 238,000 jobs and an additional £38 billion in gross value added. Brownridge hopes the Conservative plans includes all industry sectors while not ignoring the needs of scale up businesses.
“It is at the scale-up stage that the provision of tax reliefs through schemes like EIS and SEIS begin to pay real dividends through the increased employment, productivity and tax revenues that businesses generate. Any government that can claim the success for getting a return on that investment will have a great deal of political capital in the bank when the next election comes around.”