One of the key points for businesses from the Autumn Budget was Chancellor Philip Hammond’s announcement that the Enterprise Investment Scheme (EIS) is set to receive £2.5 billion of public money through facilitation of pension fund access to long-term investment. The investment limits for the EIS will also be doubled for ‘knowledge-intensive’ companies. This means that £2 million of investment will be eligible for tax relief, up from the current limit of £1 million. Mr. Hammond also stated that the government would ensure that the scheme did not become a shelter for risk-free assets as a result of the limit increase.
The EIS is open to companies which have been trading for four months or more, with fewer than 250 employees (increased to 500 employees in specific cases) and with no more than £15 million in gross assets. Since it was launched in 1994, the EIS has seen approximately £15.9 billion invested in schemes. EIS investments currently enjoy 30% relief on income tax and, if held for a minimum of three years, are also exempt from capital gains tax. This means that individual investors will be able to earn up to £600,000 in tax relief, up from the current maximum of £300,000, when the limit doubles from 6th April 2018.
As there had been some worries before the Autumn Budget that the Chancellor would reduce EIS tax advantages, the announced increase is likely to be seen as a positive move for the UK economy and welcomed by companies who benefit from EIS funding. It is hoped that it will support business growth and generate both jobs and income. However, as Mr. Hammond has not yet defined what a ‘knowledge-intensive’ company is and exactly what he means about preventing the schemes from becoming shelters for assets, some further clarity on these points will hopefully be forthcoming from the Chancellor soon.