The latest HMRC consultation on EIS relief is proof positive that the Government really does listen to reasoned proposals for improving legislation.
The current EIS and VCT schemes were introduced about 20 years ago and since then about £16 Billion of equity investment has been raised, supporting over 20,000 companies.
There has however been a long-standing problem over “emergency” loans which are then converted into shares and do not qualify for EIS relief. The typical situation which arises is that the investors are prevailed upon to cover the payroll at the end of the month or some other major item of unforeseen expenditure. Rather than let the company fall into administration, the investors stump up the cash by way of an emergency loan and then find that, if it is subsequently converted into shares, the resultant shares will not qualify for EIS relief. The proposals set out in the attached document suggest that investors should have up to 3 months to convert such a loan into shares and this proposal will be widely welcomed.
There are a number of other detailed proposals which are broadly to be welcomed as well as requests for evidence about the effectiveness of these schemes which are fundamental to the operation of the early stage venture capital market. Any extension of the schemes to facilitate their more efficient operation is to be welcomed. While the UK is doing pretty well in European terms, the amount of business angel investment in America is still between 3 and 6 times the amount invested in the UK. We do not need to look beyond that to understand why the Americans have been so successful at creating so many world class technology companies.