The Autumn Statement included significant extensions of the SEIS, EIS and VCT schemes, which will be welcome news to early stage businesses looking to raise equity investment.
What is SEIS / EIS / VCT?
The Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) are tax efficient schemes intended to encourage investment into higher risk, early stage private companies.
The SEIS scheme provides investors with a rebate against their income tax bill of 50% of the amount invested, with the EIS and VCT schemes providing a 30% rebate of the amount invested. Investors are exempt from capital gains tax on any gain realised on the sale of an investment that qualifies for SEIS, EIS or VCT treatment.
You can read more about these reliefs in our previous blogs at https://www.brabners.com/blogs/tech-funding-seed-enterprise-investment-scheme-seis-and-enterprise-investment-scheme-eis and https://www.brabners.com/blogs/venture-capital-trusts
EIS and VCT to continue
The EIS and VCT schemes were previously subject to a ‘sunset’ clause, meaning that the reliefs were due to close for new investments in 2025. After a significant lobbying exercise by the UKBAA and other industry bodies, the government has confirmed that these reliefs will be extended and continue to be available beyond 2025.
How is SEIS changing?
The government has announced three significant expansions of the SEIS relief:
- The maximum amount that can be raised by a company under SEIS has been increased from £150,000 to £250,000
- The gross asset limit (which a company must be below in order to qualify for SEIS) has been increased from £200,000 to £350,000
- The age limit (that companies cannot exceed in order to qualify for SEIS) has been increased from two years to three years
These changes will take effect from April 2023.
How will these changes help companies looking to raise finance?
The EIS and VCT reliefs have been a key driver in the early stage funding ecosystem for a number of years, enabling venture capital fund managers to raise significant funds from private investors to invest into the promising (but high risk) new businesses. The proposed withdrawal of the EIS and VCT reliefs had proposed a significant risk to this sector and the ability of fund managers to raise funding to support businesses that are regarded as a much higher risk than other asset classes (such as listed companies or property funds). The extension of these schemes will be a significant relief to fund managers in the sector and for early stage businesses looking to raise finance beyond 2025, and should continue to ensure a ready flow of investment into the early stage funding market.
While more extensively used by angel investors than fund managers, the increase to the SEIS limits should provide a significant boost to businesses looking to raise seed and pre-seed investment rounds, which has historically been one of the most difficult funding rounds for companies to close (particularly for businesses located outside of the capital).
If you are interested in finding out more about how the mini-budget might affect your business, please contact Daniel Hayhurst or a member of our Corporate Team.
