An increase from 1,457 in 2010/11 to 2,1147 in 2011/12 of companies using tax efficient funding method the Enterprise Investment Scheme (EIS) has been recorded by Rockpool Investments.
Research from the private companies investment firm shows a 47 per cent jump in those employing EIS funding.
The firm suggests that the number of applications is likely to show a further ‘dramatic increase’ in the current tax year due to changes being announced relating to the scheme. Under new rules from the government, EIS is now available to a wider range of businesses.
Bigger companies are now free to utilise the funding route, with Rockpool predicting that an influx of more stable companies will encourage more investors to use the scheme.
Introduced in 1994 to encourage investment in entrepreneurial business ventures, EIS offers tax reliefs to investors. By putting money into the scheme, a 30 per cent income tax relief on up to £1 million per annum can be gained by an investor. Furthermore, the ability to roll over unlimited capital gains into qualifying investments and to realise any profits on an investment free of capital gains tax is also possible.
In 2012 the government announced an extension to EIS, the Seed Enterprise Investment Scheme (SEIS). The SEIS funding option is aimed at smaller businesses and means that investors can commit up to £150,000 in a single company, and in return receive tax relief of 50 per cent on their income tax for the year the investment is made.
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Gary Robins, partner at Rockpool Investments, says that the funding mechanism is one of the most ‘successful schemes’ for attracting equity investment.
He adds, ‘EIS has been crucial in generating equity for these loan-starved businesses, whilst benefitting investors through very generous tax incentives.
‘SMEs are vital to delivering growth to the UK economy, but many smaller businesses with strong potential are often not able to access the funding they need to grow because the banks won’t lend.’
Robins says that businesses which can’t access funding are then not able to put money into people and other assets.
Figures released by Rockpool Investments back in September showed that the level of cash secured through EIS had climbed by 18 per cent in the year to 31 March 2010. Since its 1994 creation, some £8.2 million has been invested in 18,000 companies, the figures revealed.