The end of the Enterprise Investment Scheme (EIS) could be the “death-knell” to seed stage start-ups, investors have warned.

Currently utilised by 3,755 companies, the scheme has provided generous tax relief for investors since 1994 and raised £1.6bn in the year ending April 2021.

However, it is due to expire in April 2025 because of a European Union state aid “sunset clause” and now chancellor Kwasi Kwarteng is being urged by investors to maintain support for the scheme in his mini budget on Friday.

The Seed Enterprise Investment Scheme (SEIS) for smaller start-ups is unaffected by the expiration date.

See also: How entrepreneurs can qualify and take advantage of EIS and SEIS

Roderick Beer, the UKBAA’s managing director, told The Times“It could be the death-knell to this seed-stage industry. We are massively ahead of other countries in mainland Europe and it’s driven almost entirely by EIS being around for 28 years.”

EIS is an influential incentive for investors. A report by the UKBAA showed 88 per cent of EIS investors cited the scheme as “crucial” or “very important” in their decision to become an angel investor.  

See also: Deepbridge EIS to raise £86m this tax year for tech start-ups 

Michael Moore, director-general at the British Private Equity & Venture Capital Association, added: “Incentives like SEIS, EIS and VCTs [venture capital trusts] encourage investment that is so vital to their success. 

“At a time of economic uncertainty, we’d welcome confirmation from the chancellor on renewal of these schemes as the current doubt surrounding the sunset clause could stunt the future growth of so many of these start-ups.”

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