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Extending carry back – what is your view?

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Par Equity is working with advisers to understand how EIS can be improved as a tax efficient investment tool.  One area of particular interest to Par Equity is the way in which “carry back” works in practical terms for all stakeholders in the industry, including its impact on you as advisers.  We have devised a survey to understand the extent to which you use carry back for your clients and whether increasing the carry back period to 2 years will be of benefit to and your clients.

A reward for your help!

As a reward for your help, respondents will be automatically entered into a prize draw whereby 3 lucky winners will forego a dry January and will have the option to win a special bottle of whisky or gin.

All advisers that complete the survey will be entered into the prize draw, receive a copy of the findings and some further information on EIS.

To access the survey and make your views count, please read about the issues below, and then click here.

The closing date for the survey is 21st January 2021. 

What is carry back?

Carry back is the term used to describe the way in which EIS income tax relief can be secured against an investor’s income tax liability in the previous tax year. For example, the current rules set out that if an investor makes an investment into an EIS qualifying business on, or before, 5th April 2021, then they can offset the 30% income tax relief on the investment against their 19/20 tax liability. Any investment made after 5th April 2021 can not be “carried back” to reduce the tax liability in the 19/20 tax year.

What’s the problem?

In practical terms, the investor (and their adviser) won’t have a good feel for their tax liability for the 19/20 tax year until November or December 2020. This means that in order to advise your clients effectively, you will only be able to use EIS as an investment tool if your client is then fully deployed within the following 4 or 5 months.  This creates deployment pressure for your client, you the adviser and for any EIS Fund manager with the mandate to invest the money by the end of the tax year. There is an increased risk that your client has increased their portfolio concentration to meet the end of tax year deadline.

What’s the solution?

Par Equity is proposing to lobby HMT to increase carry back from 1 year to 2 years, so in practical terms, an investor can make EIS qualifying investments in the 21/22 tax year, and claim income tax relief against their 19/20 tax liability.  This is an important change to the rules for all stakeholders in the industry, smoothing the investment process and potentially increasing the amount invested into young companies:

  • For Advisers: this should allow you to have tax planning discussions with your clients, without deployment pressure and potential concentration risk. So, instead of monitoring EIS Fund managers to deploy your client’s money within 4 or 5 months, there would potentially be 16 or 17 months of runway to reach full deployment, whilst still meeting your client’s tax planning goals.
  • For Clients: this should help your clients to be invested across a larger number of EIS investment opportunities, improving portfolio diversification and investment selection.
  • For Entrepreneurs: this should remove the seasonality of EIS, meaning that entrepreneurs can raise money at all times of the year instead of experiencing a larger wave of capital being deployed between November and early April, and a slightly more barren investment landscape between April and November.
  • For EIS Fund Managers: this should help managers deliver the very best investment opportunities for your clients and will remove potential perverse incentives to deploy money before an artificial deadline which carries the danger of reducing investment performance.

We hope you will complete the survey and make your preferences known. It only takes 5 minutes to complete.

Click here to complete the survey

For more information about Par Equity, please click here 

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