MPs in the All-Party Parliamentary Group on Entrepreneurship have cautioned that the legislation governing tax breaks for entrepreneurs needs to be renewed before sunset clauses take effect.
Despite the Government’s expressed intention to update and protect these schemes, MPs have noted that no legislation has yet been passed to this effect creating uncertainty for investors.
In a report on tax reliefs, the parliamentary group has called on the Government to provide clarity about the future of the Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trust (VCT) schemes.
They have also called on the Government to update the rules to reflect the size of the modern start-up community in the UK.
Investment in start-ups has increased dramatically from £1.6 billion in 2011 to £27.7 billion in 2021, according to an analysis of official data – ranking the UK third for start-up investment behind the US and China.
However, the schemes are due to close in April 2025, unless the rules are revised, as the Finance Act 2015 imposes a limit on the schemes’ lifetime.
The All-Party Parliamentary Group on Entrepreneurship has expressed the view that the current system, which is well understood by investors and start-ups, should be maintained.
They emphasized that any alternative system would have to be significantly better than the existing one to justify restructuring existing arrangements and investor education from scratch.
The current uncertainty about the future of the schemes may discourage investment, as investors will be hesitant to invest in illiquid funds without the assurance of future liquidity or the opportunity to invest and grow.
The generosity of the SEIS scheme is likely to be increased, according to the Government in the last Autumn Statement, but the required legislation is yet to be passed.
If you or your clients are interested in making tax-efficient investments via any of the schemes, we can help guide you on the best approach. To find out more about our specialist tax expertise, please contact us.
