Following the announcement that the EIS Sunset Clause will be extended, the Enterprise Investment Scheme Association (EISA) have provided their thoughts.
The European Commission has published a letter to the UK Government confirming that:
“The Commission has accordingly decided not to raise objections to the aid [EIS and VCTs] on the grounds that it is compatible with the internal market pursuant to Article 107(3), point (c), of the Treaty on the Functioning of the European Union.”
The letter is dated 22nd July 2024 and details the dates of the discussions between the UK government and the European Commission around the extension of the sunset clause on the EIS (and VCTs) which were initiated in April 2023. This news is very welcome and an important step towards final confirmation of the extension of the sunset clause to 2035. EISA has not yet received confirmation from the Treasury but hope to receive more information soon.
The extension to the EIS was initially reported in November 2023, when the then government announced a 10-year extension to the EIS to April 2035. This passed through Parliament as part of the Finance Act 2024 in February. Whilst this was passed into law, there was clause stating that “This section comes into force on such day as the Treasury may by regulations appoint.” EISA’s understanding of the reason behind this was that the Treasury were in discussions with the EU about the extension.
Last month (July), the Treasury confirmed that they were at an ‘advanced stage’ of the processes to extend the EIS. This letter is therefore a very positive step and we look forward to receiving further news from the Treasury soon.
The letter also includes interesting analysis from the government evaluating the effectiveness of the EIS:
“The 2022 ex post evaluation has shown that the EIS/VCT schemes have incentivised additional investment into target companies. In the absence of the schemes, most investors would have invested in less risky ways and over three quarters would not have invested in the same or similar companies.
More than half (57%) of EIS investors said the tax incentive was one of the most important reasons they invested through the scheme.
When presented with a counterfactual of no tax incentive scheme or one that was less generous, investors indicated that they would change their investing habits and/or withdraw some or all of the investment from targeted companies. The UK authorities conclude from this that an equity gap would likely develop if the schemes were withdrawn or scaled backed.”
Christiana Stewart-Lockhart, the Director General of the Enterprise Investment Scheme Association (EISA), added:
“This news is very welcome and an important step towards final confirmation of the extension of the EIS sunset clause to 2035. The EIS plays a critical role in driving innovation, job creation and economic growth and, together with the SEIS, it has facilitated £32 billion of private investment into 56,000 business.
“We look forward to further confirmation from the Treasury which will give some much needed certainty to startups and investors across the UK.”
