Initial Budget Reaction from Daniel Rodwell

  • On November 23, 2017
  • By GrowthInvest Admin

As strong winds buffeted the UK last night, one could have been forgiven for thinking these were truly the winds of change. As Philip Hammond delivered his eagerly anticipated budget speech yesterday, the tax enhanced and venture capital community sat on the edge of their seats. Hammond ended the speculation by delivering an unexpectedly positive budget for the EIS and VCT industries. In doing so he asserted his commitment to supporting the UK’s young businesses, and thereby building a platform for growth and increased productivity in a post-Brexit Britain.

The UK has long been the envy of the world for its approach to encouraging investment in young innovative companies. However, fears that EIS and VCT would be impacted negatively as a result of the Patient Capital Review were unfounded. Indeed it seems that a concerted and collective effort during the consultation process, focused rightly on the trade bodies EISA and the AIC, have really paid off for the industry as a whole. The government listened. As expected, the schemes have been further refined to target only the real growth companies they were designed to nurture, and in doing so, reward investors who are willing to accept some risk on their investments. Alongside this, there are measures to improve process efficiency and some notable increases in the investment limits for both companies and investors.

Greater access to capital for knowledge intensive companies

By doubling the annual investment limit for investors (£1m to £2m) and companies (£5m to £10m), we will go some way to improving access to capital for later-stage scale-up companies, an area where the UK is still some way behind other nations. It should be noted that this only applies to those companies qualifying as ‘knowledge intensive’, meaning those companies where a significant portion of their operating costs relate to Research & Development or creating Intellectual Property.

Greater focus towards growth and development

By introducing a new principles-based test, HM Treasury seeks to ensure investment is directed solely to those higher-risk companies that will invest in growth and development, thereby delivering growth and revenue to the UK in the long term. Capital Preservation type deals have been specifically targeted and as such any deal where there is low risk and a capped return to the investor will be deemed non-qualifying. This will be introduced from Royal Assent of the Finance Bill 2017-18.

VCT restrictions

VCT’s will be required to invest 30% of funds raised within 12 months rather than the previous 70% within 3 years. The required amount of funds in qualifying holdings has moved from 70% to 80% and there are restrictions on the use of loans which can no longer be secured. However, the period for reinvesting gains has increased from 6-12 months.

Improvement in process

We understand that HMRC has committed to a 15 day turnaround on the Advance Assurance process from Q2 2018. This is a real step forward as the inefficiency of this process has been a well-documented problem within the industry for some time. This step will increase the fluidity of the fundraising process and will be a welcome benefit for both the fast moving companies is supports and the investors themselves.

Whilst there will undoubtedly be some devil in the detail, we feel that this a clearly a positive result for our industry. GrowthInvest believe in the UK’s growth companies and the positive impact they can have on our economy. We hope that this budget will serve as another milestone in improving the EIS and VCT schemes and making these more understandable and transparent. In doing this, the use of these schemes should increase across the UK, growing our industry, growing our innovative companies, and growing our economy.

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