The system of claiming tax relief on investments should be used by the government to make investment easier and fully realise the potential of existing schemes, a new report by the Institute of Directors (IOD) argues.
The report focuses on the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) and claims that uneven knowledge and uptake are holding the schemes back.
While £1.6 billion was invested in around 24,000 companies through EIS/SEIS in 2013/14, the research finds that 95% of this money came from large investors. Furthermore, 69% of the total money raised went to businesses in London and South East.
A lack of awareness of the schemes seems to be the main reason behind this uneven picture. The IOD surveyed its members and found that less than two fifths, many of whom are directors of companies, knew about EIS.
The report calls for the government to take the following actions in order to raise awareness about investment schemes:
- increase promotion of EIS and SEIS as funding options
- tax relief on investments of less than £2,000 should be handled by a new, online-only system
- a new ‘super-ISA’ should include EIS and SEIS investments
- an ‘aggregator fund’ to help smaller investors should be set up by government and industry bodies.
The report also suggests that a pilot scheme should be launched in the North West in order to test the impact of a higher regional rate of tax relief for SEIS.
Jimmy McLoughlin, deputy director of policy at the IOD, said:
“Britain’s start-up scene is thriving. More than 2 million businesses have been created in the last 4 years and more and more people are carving out their careers as an entrepreneur. There is a real appetite across the country for owning and investing in businesses and Britain tops the European league tables when it comes to the best place to start a new enterprise.
“EIS and SEIS can open up the equity economy and help more people take a stake in the start-up revolution taking place around the country. Too few businesses, however, are aware of these schemes, and not enough investors feel confident enough to get involved.”