A new HMRC report demonstrates the huge positive impact the Government’s flagship Enterprise Investment Scheme (EIS) has had on funding for SMEs in the UK, with 88% of EIS companies agreeing that the scheme had helped them grow, says private equity firm Growthdeck.
The HMRC report also found that 53% of companies* believe they would no longer be in business without their EIS funding.
EIS is the Government’s flagship tax incentive to encourage private individuals to invest in fast-growing UK businesses. Since it was introduced in 1994, more than £30bn has been invested into over 53,000 companies through EIS.
4,480 companies received EIS funding in the 2021/22 tax year, raising £2.3bn in new equity in total**. This amounted to a 39% increase in investment from 2020/21, where 3,765 qualifying companies raised £1.7bn.
Ian Zant-Boer, CEO of Growthdeck, says: “Those involved with EIS have always known how important it is to Britain’s SMEs – this report has provided a ringing endorsement.”
Key findings of the HMRC report:
- Use of EIS by companies was associated with a 132% increase in assets, a 39% increase in employment and an 88% increase in turnover
- 82% of investees used EIS funding to add new products or services. 76% made significant improvements to existing products and services, while 73% added new technology
- 63% of EIS investors would be more likely to invest in the future if there was a wider range of qualifying companies
“There’s even more that EIS could be doing”
Growthdeck says that EIS has already proven itself to be a vital conduit for funding for UK SMEs, so the Government should look to make even greater use of the scheme to fund a new generation of British scaleup businesses.
SMEs have been struggling with high interest rates, which have created difficult conditions for securing finance. Bank lending is now markedly less affordable than it was two years ago, and many PE and VC funds have pulled back from making new investments. Many high-net-worth private investors, however, are still keen to invest in fast-growing businesses.
Says Ian Zant-Boer: “EIS has done a great job filling a funding gap that is widely acknowledged as a problem – the scaleup businesses that are too big to grow using debt alone but haven’t yet reached the size where PE funds will consider them.”
“However, there’s even more that EIS could be doing – investors themselves say that they would invest more if they had more choice. A lot of people involved in EIS believe that some relatively simple ‘tweaks’ to the scheme could really loosen some of the shackles that are preventing it from doing more.”
“For example, EIS investment is only open to businesses that are less than seven years old. HMRC has a good reason for this – to target help where the need is greatest. However, businesses outside of this range may still be fast-growing scaleups that need funding. They could benefit from a similar scheme targeted at them.”
