Yesterday morning, HMRC released the 2024-25 EIS and SEIS figures, which showed a consistent level in funding from previous years. They also announced the VCT figures, which rose modestly in the 2024-25 tax year. Jonathan Moyes, Head of Investment Research at Wealth Club, shares his thoughts on the latest figures.
Investments into Enterprise Investment Scheme (EIS) qualifying companies were unchanged at £1.6 billion in the 2024/25 tax year, while investments into Seed Enterprise Investment Scheme (SEIS) qualifying companies hit £276 million in the 2024/25 tax year, up from £242 million. Meanwhile, Venture Capital Trust (VCTs) investments rose to £881 million in the 2024/25 tax year, up from £872 million.
Jonathan Moyes said:
“Funding for ambitious startups through the UK’s Venture Capital Schemes continues to stagnate, which will be a blow to the innovation economy, and efforts to propel growth across the nation as a whole. The two main schemes, VCTs and EIS, were broadly flat over the period, whilst SEIS, historically an area of strength, saw growth slow to 14%, down from 51% in the year prior.
“The UK venture capital ecosystem continues to endure a hangover following a tough period for investors in early-stage technology businesses. The period of higher inflation and interest rates that followed the war in Ukraine brought with it a period of significant market volatility. This continues to affect investor sentiment.
“However, the schemes continue to be a vital source of funding for UK startups, particularly as other sources of funding dry up. Beauhurst research shows that total investment into UK private companies fell by a further 5% in 2024 after a gruelling 42% drop in 2023. The reduction in funding from the wider market is far larger than we have seen through the Venture Capital Schemes, suggesting the schemes are proving to be a more resilient source of funding for UK startups.
“SEIS is typically always a bright spot. The UK has a range of good quality SEIS funds, incubators and accelerators that all help to helping to create a thriving environment for the earliest stage companies. The continued growth in SEIS is in part due to the decision in 2023 to increase the amount companies can raise through SEIS from £150,000 to £250,000. Several SEIS funds are also able to invest British Business Bank capital alongside these SEIS investments to further boost the cheque size for fledgling businesses.
“The government will be hoping a similar move in EIS, where the amount companies can raise through EIS has recently doubled, will have a similar effect in turbocharging the funding for the UK’s brightest startups. But it may be wishful thinking. This snapshot shows that the innovation economy sorely needs a leg up to help boost growth. It comes as there is a significant challenge facing the VCT market given than income tax relief on investments fell from 30% to 20% from last month.
“History shows the potential consequences of such a move. The last time income tax relief was reduced, in 2006/07, VCT fundraising fell by 65% year-on-year. While the impact this time may be less severe – given today’s higher tax environment and fewer alternative tax-efficient investment options – we still expect a material decline in annual VCT investment.
“This would be a negative outcome not only for investors, but for the broader UK economy. VCTs have been one of the UK’s most successful long-term investment schemes, supporting thousands of growing businesses and contributing meaningfully to employment and economic expansion. We struggle to see the logic behind this policy decision.
“The projected tax revenue gain is relatively small – around £120 million per year – yet the potential damage to the funding ecosystem for start-ups and scale-ups, and the knock-on effects for growth and job creation, could be far greater. It’s time to reconsider this reduction in tax relief and continue to support a scheme that has delivered clear and lasting benefits to the UK economy.”
