UK200Group members comment on a call for a simplification of the tax relief schemes on investments
Members of the UK200Group of independent chartered accountancy and law firms have commented on the Institute of Directors (IoD) call for a simplification of the tax relief schemes on investments.
A new report by the IoD has argued that the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are not being fully utilised in their current form.
The IoD said that up to 24,000 firms benefited from £1.6bn of funding through the two investment tax relief schemes in 2013/2014, but found that 95% of the funds came from large investors, and that 69% of investment was supporting businesses in the South East.
The IoD has called on the government to introduce an online system for claiming tax relief on investments of less than £2,000 to make the system simpler and is pushing for EIS and SEIS investments to be included in a super-ISA.
Jonathan Russell, partner at UK200Group member firm ReesRussell, said:
“EIS and SEIS are both more attractive on paper than is actually true in practice. The underlying schemes themselves are not overly complex, but the process of marrying potential investors and businesses is a stumbling block and often the costs involved are out of proportion to the money raised.
Any form of equity investment has a risk and should only be undertaken by those who understand the risks. Equally the businesses wishing to raise money need to appreciate their obligations to their investors before seeking investment.
The current market tends to favour businesses specifically created or structured to take advantage of the schemes, rather than those that could do with this sort of money.”
Andrew Jackson, head of tax at UK200Group firm Fiander Tovell LLP, commented:
“I’ve found that EIS is very popular with investors, and certainly encourages investment by business angels.
However, I am aware that HMRC can, in some cases, be over-scrupulous in applying the rules, which are already very tightly drawn, and can seek to disallow relief in cases in which, if one steps back and looks ta the big picture, it clearly ought to be given.
An obvious example of the rules being over-tight was the position (now resolved, thankfully) where an off-the-shelf company could not qualify for SEIS at all, but it had to be freshly formed – a restriction which served no policy purpose at all.
Defects in legislation can be fixed, but what is harder to resolve is HMRC’s attitude, which seems to be one of grudgingly conceding relief where they cannot deny it, rather than seeking to facilitate the granting of relief intended by Parliament.
For example, in one case I know of, HMRC are seeking to deny relief for a six-figure investment on the grounds that the bank did not transfer the funds on the same day, but took until after the weekend to do so – a stance, which has put the investor concerned off making any future investments.
A clear statement by HMRC that EIS is something which ought to be available – backed up by action – would be very welcome.”
Duncan Montgomery, tax partner at UK200Group member firm Whittingham Riddell LLP said:
“An online reclaim system for small investments would be a big move forward, but what stops other investments, is not the understanding, but the nature of the bet. The entire investment industry is geared towards collective investments, with no room for individuals. With a risk mantra, that someone with cash to invest who seeks advice will rarely if ever receive a suggestion of a single company investment, because they are perceived to be too risky.
So it is no surprise that the investors who try EIS are larger investors, both because it takes a lot of courage and groundwork and trust to invest in a single business if the amount is meaningful to the investor, but also because those who give financial advice will not recommend single investments very often.
So in short, if EIS is to fly further, then a collective superstructure that comes with tax relief (an EIS fund if you will) would be a much better step.”