During the credit crunch many SME companies have struggled to raise sufficient finance to help them grow their way out of the recession. The Banks are apparently struggling to achieve their promised lending targets and venture capital has always been extremely expensive. Business angels are a good source of alternative finance but the tax-breaks available to them under EIS have been scaled back in recent years.
It is therefore welcome that there are some exciting developments are in the pipeline for SME companies looking for much needed new sources of finance. These initiatives could provide a much wider choice to UK companies wishing to grow.
Massive boost to EIS
First of all, EIS relief has been given a massive boost by incentivising investors to back UK business and greatly increasing the number of companies that can benefit.
• From 6 April 2011 the income tax relief for EIS investors has been increased from 20% to 30% making such investments much more attractive to business angels.
• From 6 April 2012 the maximum EIS investment an individual can subscribe for is doubled to £1m,the maximum an investee company can raise in a 12 month period goes up from the current £2m to £10m, the maximum number of employees an investee company can have increases from 50 to 250 and the gross assets limit shoots up from £7m to £15m.
• The Government is also consulting on removing restrictions which prevent EIS investors taking preference shares.
Tax-free remittances for non-domiciled individuals
Secondly, in a major landmark change in tax policy, from 6 April 2011 non-domiciled individuals will be able to remit offshore money tax-free to the UK provided they use the money to make an investment in a UK business.
The precise details of this new policy are currently under public consultation but the initial proposals are that the investments will be:
• Without limit in size;
• Made into a wide range of UK based trading companies and those involved in the development or letting of commercial property; and
• Made by way of share or loan capital.
Supporting ‘seed investments’
Thirdly, the Government has set out plans for a ‘Business Angel Seed Investment Scheme’ (‘Basis’) designed to encourage business angels to back early stage companies with ‘seed investments’. The proposals are under public consultation but the aim is to have a narrower category of investor and range of company than under the current EIS but the investments may be allowed in the form of ‘debt instruments’ rather than just pure equity.