Observers of recent Budgets will have noticed that the Chancellor has made several references to “EIS Knowledge Intensive Funds”, as a new initiative to help finance growth in innovative firms. He has even invented a new phrase to describe this type of funding: ‘Patient Capital’. The initial March 2018 Consultation Paper has now closed for interested parties to make responses on this, so we can now see the general shape of what the Government is proposing:
- Rather than create something new, the current EIS scheme is to be improved, wef 6-Apr-20,
- New dividend tax reliefs will not be considered, as growing companies should be encouraged to reinvest their profits,
- Focus on knowledge-intensive businesses,
- HMRC to digitise the administrative EIS paperwork process.
In order to encourage greater individual investment in growing tech companies, the improved tax ‘sweeteners’ now being considered have been short-listed to:
- The maximum period for the company to use the funds raised will be extended from 1 year to 2 years (with at least 50% used within 1 year),
- A carry back rule will be introduced so that investors will be able to set their relief against income tax liabilities in the year before the fund closes.
The Government’s original aim of unlocking £20 billion of new growth capital over 10 years was very ambitious, yet the red tape and tax changes now being considered hardly seem significant enough to encourage any real change in behaviour.