So where does that leave the EIS?
Less than a month ago, we were poring over the Tory manifesto. Now, we’re glued to the news stations just to make sure we are waking up to the same Prime Minister and Chancellor as last night. The current political uncertainty makes it much harder to predict the likely out-turn of events for the Enterprise Investment Scheme (EIS). So, we need to make a number of assumptions, and the biggest of all is that the current PM and Chancellor will remain in place until at least the end of this year.
Assuming this is the case, the following could be deemed to be reasonable assumptions:
- A softer Brexit as a result of the current Tory weakness, which in turn is generally thought to favour not only the City and financial services, but also SMEs, which are likely to suffer less red tape invasion.
- Further endorsement for the EIS/SEIS from the Patient Capital Review, which is due to report this summer. Despite the somewhat strange composition of the great and good on the committee, we are hopeful the EIS will be mentioned in despatches.
- “Further incentives” under our “world-beating” EIS and SEIS schemes, as quoted in the Tory manifesto, which could possibly take the form of, say, a higher investment limit for the SEIS than the current £150,000 limit, which is very restrictive.
- A softer Brexit could imply less immediate erosion of the status quo in terms of EU imposed restrictions and a delay in the UK breaking free from the clutches of the State Aid Guidelines. It could also mean a delay in the British Business Bank replacing European Investment Fund funding as a vital support of small and start-up businesses.
- The Budget, which will now be in November rather than March, might contain a number of changes, which could have the effect of both accelerating or holding up investment decisions. VCTs were not mentioned in the manifesto – what does this mean? Could they be for the chop? If so, could that be in November? A number of VCT promoters are not hanging around, but launching major new fund raises now.
- Similarly, might SEIS investors hold off until after the Budget, in the hope the rules could be subject to favourable amendment?
Against this background, we continue to get reports about the mounting number of HMRC queries and checks, both at the Advance Assurance and Full Clearance stage, and a two speed process, one for the open and shut cases, and another for anything which looks remotely borderline or complex. The moral of this tale: keep those applications simple.
And if there are changes announced in the Budget, will they be introduced overnight, or introduced with effect from 6 April 2018? Might we be facing a busy autumn but a slow winter? And will there be a supply problem in the market? If so, it could be better to bring those investment decisions forward by a few months.
Martin Sherwood, Partner
Martin Sherwood has many years’ experience of small company fundraising and in particular the tax-efficient investment market, specialising in the Hospitality & Leisure Sectors. Martin is currently chairman of the four British Country Inns companies and of Halcyon Hotels and Resorts plc, which is in joint venture with Luxury Family Hotels, which he helped launch 20 years ago. He was founder and head of Tax Efficient Solutions, first at Teather & Greenwood (1997-2004) and subsequently at Smith & Williamson (2004-2010), which he left to found Enterprise.
Martin has been closely involved in both Venture Capital Trusts and Enterprise Investment Schemes (EIS) since their inception, and is a founder director of the EIS Association, the official trade association of the EIS industry.
Martin works very closely with a wide range of Hospitality & Leisure entrepreneurs and has a significant network of investors and professional contacts as well as being a serial investor in his own right.