A quarter of British entrepreneurs have not heard of the Enterprise Investment Scheme (EIS), new figures show.

A study compiled by entrepreneurs network E2Exchange finds that 25 per cent of business builders have not heard of the funding incentive, and 35 per cent are not aware of the EIS tax relief available to investors.

Further findings from the report shows that 40 per cent have not heard of the newer Seed Enterprise Investment Scheme (SEIS) and 50 per cent did not know how it worked.

EIS was first established in 1994 to encourage early-stage investors to provide angel capital to riskier business ventures. Through the funding mechanism, investors are able to gain income tax relief and capital gains tax aid.

SEIS was set up in 2012, and is targeting businesses at the earlier end of the spectrum. Both incentives have been promoted by the government and have received praise from around the world for encouraging start-up investments.

Of the 1,000 entrepreneurs questioned, many cited the fact that banks or financial advisers had not mentioned the schemes.

Of those who knew of the two schemes, but did not know how they worked, a number proclaimed that they thought EIS and SEIS were only available to passive investors.

Shalini Khemka, CEO of E2Exchange, comments, ‘The significant lack of awareness of EIS and SEIS and the fact that a large number of entrepreneurs had not used them to raise investment suggests that both schemes are not working as well as they could to help young businesses raise the funding they need to expand and grow.

More on EIS and SEIS:

• Negotiating the EIS investment route
• Use of EIS surges as SMEs seek growth capital
• EIS for entrepreneurs

As part of its survey, E2Exchange is proposing a number of measures to improve the ‘attractiveness’ of the two funding options and raise popularity. It would like to see tax relief provided for debt backing as well as equity-based transactions and an improvement in preferential rights for EIS and SEIS to allow shareholders normal cumulative rights to dividends if they are not paid in early years and preference in liquidations.

Furthermore, E2Exchange is calling for wider sector eligibility, so that ventures such as hotels and residential care homes qualify, as well as the doubling of the maximum £150,000 that businesses can raise under SEIS.

Adrian Walton, tax partner at Smith & Williamson, adds, ‘The relative lack of awareness of EIS and SEIS evidenced from the survey results is concerning, although not totally unsurprising in the case of SEIS as the scheme only started in April 2012.

‘For those individuals and businesses that do not use the schemes, a recurring comment is that the rules are too restrictive both in terms of the types of trading activities that qualify, and the nature that securities that can be issued to investors under the schemes.’