Monday 8 June 2020 3:42 pm

Businesses urge Treasury to incentivise private investors to protect SMEs from collapse

British businesses have called on the Treasury to incentivise private investors to invest in SMEs that have been badly affected by the coronavirus crisis. 

In a letter to the Chancellor, law firm Buckworths has asked the government to incentivise so-called angel investors to invest in startups to help them repay the debt that has mounted during the pandemic. 

Buckworths, which works exclusively with startups and high growth businesses, along with 87 other signatories note that investors providing matched funding under the government’s Future Fund scheme cannot claim EIS on their investment. 

The convertible loan note structure of the Future Fund means it is not eligible for EIS, and risks excluding SMEs and early-stage firms.

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The Enterprise Investment Scheme (EIS) is a form of tax relief to encourage investment into startups and early-stage businesses. It allows startups to raise up to £5m a year, capped at £12m overall, through private investors who receive tax breaks. 

Additionally the vast majority of startups cannot qualify for the government’s other loan schemes – the Coronavirus Business Interruption Loan Scheme (CBILS) and the bounce back loans – because they often cannot yet demonstrate a turnover. 

“The government risks losing a generation of SMEs if it does not introduce a temporary tax relief scheme for angel investors,” the signatories have told the government. 

They have asked the Treasury to introduce a temporary tax relief scheme for angel investors, similar to EIS and open to startups with a permanent establishment in the UK.

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Buckworths has called for a higher upfront rate of income tax relief for scheme. Additionally, there should be no time limits on the age of the business so more established SMEs in sectors adversely affected by the pandemic can qualify. 

“The government must act now to incentivise angel investors to invest in businesses that have been unable to secure sufficient funding to avoid losing a huge cross section of the UK’s SME sector,” the letter concludes. 

Michael Buckworth, managing director of the law firm, said: “The huge success of the EIS scheme in funding UK start-ups demonstrates that tax incentive schemes work.”

“Replicating the EIS scheme on a temporary basis with lighter restrictions on qualification and use of funds would encourage the private sector (and not the Government) to take risk and would secure the future of our SME sector to the broader benefit of the British economy.”

Among signatories were international payment specialist Mercury FX, mobile beauty service Secret Spa, and angel network, London Business Angels & Entrepreneurs.

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