Tax Breaks Aim to Encourage Start-up Investment

Business angels investing in fast-growing small firms will benefit from a rise in tax relief, following the Government’s decision to expand the Enterprise Investment Scheme (EIS).

The expansion to the scheme was first outlined in March’s Budget and needed approval by the European Commission. It will see a 10-percentage-point increase in income tax relief for EIS investments, while amount investors can invest per year under the EIS will be doubled to £1 million. The increase in the tax relief will be backdated to April 2011 and the new investor limits will apply from April 2012.

The Government hopes the move will encourage greater investment in small firms with high growth potential, such as those in hi-tech or manufacturing sectors. 

Chancellor George Osborne said:

“We want to make the UK the best place to start, finance and grow a business. These changes will give a bigger tax break to those who take risks for growth and jobs in Britain by investing in small companies that have the potential to be fast growing.”

Andrew Cave, chief spokesperson at the Federation of Small Businesses, said the measures would act as a “huge incentive” for investors to back small firms.

“It’s a welcome move. We would like to see more schemes launched like the EIS,” he said.

Cave said the expansion was unlikely to increase the number of start-ups, but it would give more firms a fighting chance of success. “Small, growing businesses need access to finance otherwise they won’t survive,” he added.

“The changes effectively improve the payback for entrepreneurs by making it much more attractive for them to invest their money. This, in turn, should increase the level of funding available [to] small firms.”

Set up in the 1990s, the EIS was designed to support small, high-risk, start-up businesses. According to Treasury figures, more than £11 billion of investment has been channeled through the scheme since it started.

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