Record breaking year for EIS relief: HMRC publishes latest EIS/SEIS fund raising statistics

HM Revenue and Customs recently published statistics on the use of Enterprise Investment Scheme (“EIS”) and Seed Enterprise Investment Scheme (“SEIS”) funds by start-ups and scale-ups during the 2017/18 tax year (the “Report”).

The Report’s key statistics are listed below: there has been a steady increase in the number of companies raising funds through EIS since 2010. HMRC believes that this increase is due to historically low-interest rates which resulted in increasing promotion and involvement from fund managers. The increase has also been linked to the changes made by the Government to the rate of Income Tax Relief during the 2011-12 tax year (from 20% to 30%).

HMRC has also highlighted the increase in the annual EIS investment limit for companies to £5 million during the 2012-13 tax year. This seems to have contributed to the doubling in funds raised using EIS between 2012 and 2014.

The 2017/18 tax year, according to the Report, can be considered as a milestone year since the total amount of funds raised through EIS was near a record-breaking £2 billion.

Key statistics from the 2017/18 tax year

EIS

“3,920 companies raised a total of £1,929 million of funds under the EIS scheme. This is an increase from the previous tax year, when 3,655 companies raised 1,902 million.”

• “A total of £759 million was raised by the 1,710 companies raising funds under the EIS scheme for the first time.”
• “Companies from the information and communication sector accounted for £641 million of investment (which translates to 33% of all EIS investment).”
• “London and the South East accounted for the largest proportion of investment with companies registered in these regions receiving £1,283 million (which translates to 67% of all EIS investment).”
• “In 2018-19, 3,270 advance assurance applications for EIS were received and 2,040 were approved (which translates to an approval rate of 62%). This was a decrease from 2017-18 when 2,815 advance assurance applications were received and 75% of them were approved. However, the approval rate relating to 2018-19 is likely to increase since more advance assurance applications are processed – at this stage last year 60% of the applications were approved.”

SEIS

• “2,320 companies raised a total of £189 million of funds under the SEIS scheme. During the previous tax year, 2,425 companies raised £187 million.”
• “Over 1,700 of the companies were raising funds under the SEIS scheme for the first time in 2017-18, representing £159 million of investment.”
• “Companies from the information and communications sector accounted for £69 million (which translates to 37% of all SEIS investment.”
• “London and the South East accounted for the largest proportion of investment, with companies registered in these regions receiving £117 million (67% of SEIS investment).”
• “In 2018-19, 2,585 advance assurance application for SEIS were received and 1,500 were approved (which translates to an approval rate of 60%). This was a decrease from 2017-18 when 3,375 advance assurance applications were received and 75% of them were approved. However, the approval rate relating to 2018-19 is likely to increase since more advance assurance applications are processed – at this stage last year 70% of the applications were approved.”

Thoughts on the stats…

The figures provided in the Report are very positive amidst a climate of uncertainty due to the UK’s imminent departure from the European Union. Investors and companies have taken advantage of the tax reliefs put in place by HMRC in order to accelerate growth within the tech space.

The steady increase in companies raising funds through EIS is also interesting in light of the 2015 changes to venture capital reliefs, with the aim of ensuring that such reliefs are focused on high-risk ventures in the early stages of development.  This would suggest that start-ups, as well as investors, have become more aware of the tax reliefs on offer, and of how to access them.

It will be very interesting to see whether the growth trend will continue during the 2018-19 tax year. HMRC is set to publish its next report on the use of EIS/SEIS funds next year.

For further information on how you can benefit from EIS/SEIS relief, and advice on tax reliefs generally, please contact enquiries@humphreys.law.

This piece was researched and prepared by Amir Kursun, with input from Annette Beresford.

Humphreys Law