In light of the new tax year, which started on Wednesday (6 April), a raft of new reforms have changed the way British investors are able to manage their taxes. One of the most notable is the reduction to the Capital Gain Tax rate from 28% to 20% – it is anticipated that as a result of this change a growing number of investors are likely to consider Venture Capital Schemes such as the EIS as part of their tax planning strategy. This was supported by the findings of our recent Taxpayer Sentiment Report, which revealed that 54% of UK taxpayers with an investment value over £40,000 would consider investing through the EIS in the 2016/17 financial year.
Such a large body of investors looking to the EIS for the coming tax is positive news for SMEs, particularly those seeking capital investment to upscale and expand their business. Tax-efficient investment schemes like the EIS have been a fundamental provider of capital for growing business, as our CEO Luke Davis recently told Dynamic Business. In the interview, Luke explained why tax efficient investment schemes are an attractive way for investors to manage their investment opportunities and tax bill simultaneously.
While tax-efficient investment schemes have become a viable source of finance for the private sector, SMEs are still facing a £1 billion funding gap. According to a recent article by Growth Business, the issue could worsen as net lending to SMEs has fallen by £300 million, while the British Bankers Association has witnessed a further £2.7 billion reduction in the value of their net loans. The 2016 Spring Budget did much to support micro-businesses and start-ups; however, it did not do enough to help established SMEs overcome the finance gap preventing them from upscaling.
To ensure SMEs are granted suitable access to finance, industry bodies and the Government must increase investor awareness of the EIS through research and education. IW Capital has shown that support for the scheme already exists, but investors must be educated in how they can best use it. Our research found that 34% of investors with over £100,000 worth of investments would invest in SMEs but lack the knowledge to do so – this equates to £126 billion in untapped private investor finance, some of which could flow into the private sector if investor education and awareness of the pathways into Business Britain were improved.
IW Capital is taking a leading role in addressing this issue by producing timely industry reports on the EIS and SMEs. Moreover, we will be publishing a new series of educational reports that will guide investors through the ins and outs of the EIS over the coming months, explaining what it is and how to use it effectively. Furthermore, to help entrepreneurs we will soon be unveiling a new project that will directly address the funding gap facing SMEs, giving some of Britain’s brightest businesses the chance to access the capital they need to grow.
We look forward to updating you on these developments in the near future.