A UK entrepreneur group has called on the government to make improvements to the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) to better support tech startups.
A report, released today by the All-Party Parliamentary Group for Entrepreneurship, said that SEIS and EIS – two initiatives that provide tax breaks to encourage startup investment – were essential components in growing the UK tech economy.
However, the government needs to do more to support them, the report said, including improving communication between HMRC and the startup and investor community.
“The EIS advance assurance team at HMRC should be given the resources it needs,” said the report.
It stated that the tax department should be in contact with the early-stage tech community to ensure “good companies do not fall through the cracks”.
Specifically, the report requested that HMRC should give companies applying for the tax incentive scheme a timeline and a response to all questions.
“HMRC should also be able to contact startups and investors with clarifying questions about their advanced assurance applications, which ought to speed up the process,” the report noted.
The report also recommended reforming financial health eligibility rules. It said that under the current system, applying companies need to have “more assets than liabilities and, if raising funds outside of its initial investment period, to still have more than half of its invested capital”.
This, according to the report, unfairly restricts access to funding to early-stage companies that are initially unprofitable but have great potential to succeed through investment.
“As the rationale behind growth investment is to give money to currently unprofitable companies based on the prediction that they would become profitable in the future, these financial health tests make little sense,” the document said.
The report follows the publication of an open letter, signed by 200 UK entrepreneurs, calling on the government to continue its support for SEIS and EIS.
Signatories of the open letter included Octopus Group co-founder Chris Hulatt, GoCardless co-founder Hiroki Takeuchi, and Seraphine founder Cécile Reinaud.
Among the letter’s points was a call for greater clarity from the government over the future of the investment schemes.
Sarah Barber, CEO of Jenson Funding Partners told UKTN in response to the letter: “Clarity is always welcome, we live in an outdated system whereby we are a slave to the next general election. Perhaps some longer time thinking and joined-up thinking would be welcome where the tax schemes used are simple, clear and available to all and a clear message as to their lifetime.”