Enterprise Investment Scheme (EIS) Report 2019

Posted by Mo Rassolli on Jul 15, 2019 12:52:51 PM
Mo Rassolli

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Enterprise Investment Scheme (EIS) Report 2019: Key points and summary

The data is taken from the National Statistics publication produced by HM Revenue & Customs (HMRC). It provides information on the number of companies raising funds, the number of subscriptions and the amounts raised through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).The report encapsulates the key statistical points and discusses recent trends.

The next release is planned to be in the Spring of 2020.

 

Enterprise Investment Scheme (EIS)

Enterprise Investment Scheme (EIS) was launched in 1993-94. Since then, 29,770 companies have received investment. And the total funds raised have been in excess of £20 billion.

Under the scheme, 3,920 companies raised a total of £1,929 million in 2017-18, in comparison to 2016-17 wherein 3,655 companies raised £1,901 million.

In 2017-18, 1,710 companies benefitted from the EIS scheme for the first time, raising a total of £759 million of investment.

In 2017-18, companies from the Information and Communication sector with 33% or £641 million cornered the lion’s share of investment.

London and the South East accounted for the largest proportion of investment with companies registered in these regions receiving £1,283 million (67% of all EIS investment) in 2017-18.

Read more: https://info.trendscoutuk.com/blog/our-guide-to-eis-tax-relief-less-risks-and-high-returns

Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) was launched in 2012-13. Since then, 12,900 companies have received investment to the tune of over £1 billion.

Under the scheme, 2,320 companies raised a total of £189 million of funds in 2017-18, in comparison to 2016-17 when 2,425 companies raised £187 million.

In 2017-18, companies from the Information and Communication sector with 37% stake or £69 million of investment was the largest beneficiary.

In 2017-18, 1,700 companies benefitted from the SEIS scheme for the first time, raising a total of £159 million of 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 2017-18.

 

Social Investment Tax Relief

SITR was launched in 2014-15, and since then, 80 social enterprises have raised funds worth £6.7 million through the scheme.

In 2017-18, 20 social enterprises received investment through the Social Investment Tax Relief (SITR) scheme, raising £1.4 million of funds.

This is less than 2016-17, when 30 social enterprises raised £2.5 million. However, the figure is likely to go up as more returns are received.

 

Advance Assurance Requests (AAR)

A total of 30,965 AAR applications have been received for EIS since 2006-07 and out of these, 25,430 (82%) have been approved.

In 2018-19, 3,270 AAR applications for EIS were received and 2,040 (62%) approved. This is less than 2017-18 when 3,815 AAR applications were received and 2,860 (75%) approved. The approval rate for 2018-19 is likely to increase as more AAR applications are processed.

Since 2012-13, there have been a total of 19,820 AAR applications received for SEIS, and out of these 16,136 (82%) have been approved.

Note

While companies have a period of several years after shares are issued to submit a compliance statement (the EIS1, SEIS1 and SITR1 forms), a majority of these returns are filed within three years. Therefore, it is most likely that the figures will be revised once the pending applications are received or applications received in 2018-19 are further processed.

 

Number of EIS companies and amount of investment

Introduced in 1993-94 by the UK government, the Enterprise Investment Scheme (EIS) is a tax-efficient investment to incentivize investment into smaller UK companies. It is designed to help smaller, but high growth potential companies raise capital by offering tax relief to investors who invest in such companies by buying their shares. This creates a win-win situation both for smaller companies as they are able to generate finances to fund their growth and investors who can invest up to £1,000,000 per person per year in qualifying companies.

Since its inception, 29,770 individual companies have received investment through the scheme, and funds worth £20 billion have been raised. The number of companies raising funds and the level of investment have shown similar trends since EIS was introduced.

Under the scheme, 3,920 companies raised a total of £1,929 million in 2017-18 in comparison to 2016-17, wherein 3,655 companies raised £1,901 million.

Note that the 2017-18 figures are likely to be revised upwards as more returns are received by HMRC. Assuming that this trend stays the same, HMRC estimate says there will be 4,130 companies with funds worth £2,041 million.

Low interest rates, more publicity and increasing participation of fund managers are factors that have led to a steady increase in EIS since 2010.

In addition, the increase in Income Tax relief from 20% to 30% in 2011-12 and the introduction of the Feed in Tariffs (FiTs) initiative from April 2010 (resulting in large amounts of investment into the renewable energy sector) have also played important roles in boosting the popularity of EIS.

Irrespective of limits on eligible companies such as age limits and funding limits, and a new growth and development requirement since 2015, the popularity of EIS continues to ascend.

 

New investment in EIS

A majority of investment through the scheme since the inception of EIS has been into companies raising EIS funds for the first time (55%). 

This figure, however, witnessed a sharp downward trend in 2017-18, when only 39% of funding was raised by companies using EIS for the first time. The logic behind it is not hard to decipher: The scheme was introduced in 1993-94 and all the companies using EIS were doing it for the first time. With the passage of time, more and more companies raising funds are repeated companies.

Also, the amount invested by first-time companies in 2016-17 increased by 9.8% in comparison to the previous year. Assuming that this trend stays the same, it is estimated that the total amount will be £833 million.

 

EIS: Industry sector

In 2017-18, companies from just 4 sectors (the Information & Communication, the Professional, Scientific & Technical, the Manufacturing, and the Wholesale & Retail Trade, Repairs sectors) together accounted for over £1.2billion of investment and made up 66% of all EIS Investment.

This follows a trend similar to the previous year, wherein the companies belonging to these 4 categories represented 70% of the total number of companies receiving investment through EIS.

The trends for the two years 2016-17 and 2017-18 are very similar, with a decrease in the Electricity, Gas, Steam and Air Conditioning sectors. This is likely to be related to policy changes, excluding energy generation from venture capital schemes. The construction sector has witnessed a similar declining trend.

 

EIS: Size of investment per company

The distribution of the number of companies raising money under EIS by investment size differs from the distribution of amount of funds raised by size of investment.

A large proportion of companies receive relatively small investments, with 43% (1,680) of companies receiving investments of £150,000 or less in 2017-18. This is a similar proportion to previous years. At the same time, in 2017-18, 36% (£704m) of the amount of funds is concentrated in investments above £2m, with 16% (£317m) going to investments over £4m, which is lower than that in 2016-17.

 

EIS: Geographical region of company registration

The proportion of the amount of investment in companies registered in London and the South East was 67% in 2017-18, showing a trend similar to recent years. The geographical distribution of EIS investments is based on the registered address of the company raising funds. Please note that the address may place the company in a different region from the region in which the business activity is actually carried out, and therefore a degree of caution should be exercised in the use of this data.

 

EIS: Investors claiming Income Tax relief under EIS

The number of investors claiming Income Tax relief on Self-Assessment forms under EIS deviated little from the previous year with 33,605 in 2016-17 and 33,185 in 2017-18. However, the figures for the more recent year are provisional and likely to be revised upwards as more returns are received by HMRC.

For the 2016-17 figures, the number of investors increased by 12.5% from the previous publication. Assuming that this trend stays the same, it is estimated that there will be 37,350 investors for 2017-18. A majority of the investors claiming Income Tax relief tend to invest smaller amounts of money into companies qualifying for EIS. In 2017-18, 82% of EIS investors made a claim for tax relief in respect of an investment of £50,000 or less. This is similar to the levels seen in 2016-17.

TrendScout specialises in government initiatives of the Enterprise Investment Scheme (EIS) as well as the Seed Enterprise Investment Scheme (SEIS). We provide valuable and tax-efficient ideas for investors to consider by helping them invest via EIS into nascent tech companies with highly disruptive technology that have the potential to be the next tech unicorn 5 or 10 years down the line.

The London-based firm acts as a conduit for investors, who wish to invest in high-growth start-ups that are technologically minded and focused on high-growth areas such as aviation, Artificial Intelligence (AI) Machine Learning and renewable energy, among others.

 

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Topics: tax, investment, EIS, startup, Tech, Impact Investment, investment advice, brexit

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