British businesses call on the Government to incentivise private investors to protect SMEs from collapse
LONDON, 8th JUNE 2020 – Buckworths, the UK’s only law firm working exclusively with start-ups and high growth businesses, has today sent a letter to the Treasury requesting the introduction of measures to incentivise angel investors to invest in SMEs that have been adversely impacted by the COVID-19 pandemic.
The letter, which is signed by a further 87 UK businesses spanning a range of sectors including hospitality and tech, calls on the UK government to incentivise private “angel” investors to invest in SMEs to help them repay COVID-19 debt and relaunch their businesses.
Buckworths and the 87 other signatories noted that investors providing matched funding under the Future Fund cannot claim EIS on their investment. They argue that this risks excluding earlier stage start-ups and retail, hospitality and leisure businesses from the Future Fund because they will be unable to secure matched funding from “angel” investors. This problem is exacerbated by the fact that many of these businesses have not qualified for CBILS and Bounce Back Loans due to the State Aid restrictions included in these schemes.
To rectify this issue, the letter calls for the Treasury to introduce a temporary tax relief scheme for “angel” investors that is similar in nature to the Enterprise Investment Scheme (EIS) and open to start-ups with a permanent establishment in the UK. This scheme should have a higher upfront rate of income tax relief and Buckworths believe that there should be no time limits on the age of the business so that more established SMEs in the retail, leisure and hospitality businesses can qualify. Introducing this scheme would not only help save a vast swathe of the start-up ecosystem from insolvency but would also see private investors take on the risk of supporting the SME sector thereby preventing the UK government from incurring further debt.
Michael Buckworth, Managing Director at Buckworths, says:
“The Government has provided billions of pounds of financial support to businesses of all sizes throughout the United Kingdom. We are now asking the Government to help SMEs who struggled to access COVID-19 support raise investment by creating a temporary new incentive scheme for “angel” investors.”
“The huge success of the EIS scheme in funding UK start-ups demonstrates that tax incentive schemes work. Replicating the EIS scheme on a temporary basis with lighter restrictions on qualification and use of funds would encourage the private sector (and not the Government) to take risk and would secure the future of our SME sector to the broader benefit of the British economy.”
LETTER TO THE TREASURY
The Rt Hon Rishi Sunak MP
Chancellor of the Exchequer
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ
United Kingdom
8 June 2020
Dear Chancellor,
Re: Support for SMEs unable to access existing COVID-19 schemes
We are writing to you as a matter of urgency to express our concerns about the limited reliefs available to both earlier stage start-ups and retail, hospitality and leisure businesses who are struggling as a result of the COVID-19 crisis.
The Government has provided an unprecedented package of support to businesses to ensure that they remain viable, and to protect jobs. The Coronavirus Job Retention Scheme is estimated to have saved millions of jobs across the UK and over 800 applications have been made for the Future Fund for start-ups. The Future Fund initiative is vital in encouraging private sector investors to take on some of the risk involved in rebooting the British economy. While various COVID-19 relief schemes including CBILS and the Business Bounce Back Loan Scheme have provided important funding to tide over businesses throughout lockdown, the Future Fund provides growth funding to start-ups as they re-launch their businesses.
That said, the exclusion of Enterprise Investment Scheme (EIS) relief for individual “angel” investors providing matched funding as part of a Future Fund round significantly weakens the availability of the scheme. Most UK angel investors are reliant on EIS as a way of reducing their risk and rewarding them for making high risk investments in early stage businesses. Convertible debt (which is the chosen investment structure of the Future Fund) does not qualify for EIS. Consequently, many UK angels will not provide matched funding as part of the Future Fund, thereby excluding most earlier stage start-ups from the scheme.
Over £250m worth of applications were made to the Future Fund on the first day, demonstrating just how desperate businesses are for funding. Despite the numbers, our expectation is that many SMEs will have been unable to apply because they have been unable to secure matched funding. The problem is exacerbated by the fact that many of these excluded businesses are also not eligible for CBILS and Bounce Back Loans due to the State Aid restrictions applicable to those schemes.
The Government risks losing a generation of SMEs if it does not introduce a temporary tax relief scheme for angel investors. Our view is that this should be similar in nature to EIS and open to startups with a permanent establishment in the UK. It should have a higher upfront rate of income tax relief than EIS. There should be no restriction on repayment of COVID-19 loans and other debts incurred in the ordinary course of business (and particularly during the lockdown period) and no time limits on the age of the business so that more established SMEs in the retail, leisure and hospitality businesses can qualify. We also believe that it should be open to a wide categorisation of SMEs. Crucially this scheme would involve private investors taking on the risk of supporting our SME sector.
The Government must act now to incentivise angel investors to invest in businesses that have been unable to secure sufficient funding to avoid losing a huge cross section of the UK’s SME sector.
We look forward to discussing this further with your officials.
Yours sincerely,
Buckworths Limited
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About Buckworths
Buckworths is the only UK law firm working exclusively with start-ups and high growth businesses. Founded in 2011, the firm has offices in London and Manchester and advises start-ups in a range of sectors with a particular emphasis on tech, fin-tech, and restaurant businesses. Buckworths’ latest whitepaper on the impacts of COVID-19 on British SMEs and the perception of government relief schemes can be accessed here: Rebooting British Businesses Post COVID-19.
