British Country Inns chairman, Martin Sherwood, has written to the Prime Minister to ask the Government to ask for a simplification of tax rules around the Enterprise Investment Scheme.

Sherwood, who is a founder director of the EIS Association, the official trade association of the EIS industry, wrote an open letter to Theresa May to call for a higher profile for the schemes. He also stressed that major changes to the rules introduced last year have made them even more complex.

He highlighted three specific changes, which he said had been dictated by the EU - the 7 year “life” for EIS companies, the lifetime cap of £12m, and the so-called ‘sunset clause’, calling for the end of the EIS in 2025.

Sherwood said: “We believe that if the schemes were easier to understand, they would be more widely used.”

His full letter reads:

“A recent survey has shown that less than a quarter of MPs have heard of the Enterprise Investment Scheme (EIS). I myself recently attended a large gathering of corporate finance professionals at the Institute of Directors (IoD) where several delegates pointed to my badge, which announced I was representing the EIS Association (EISA), and asked me what the EIS was! So, it’s fairly clear the EIS industry has a long way to go in increasing awareness of the scheme and promoting its use.

With Brexit foremost in most people’s minds, The EIS Association recently launched a campaign to raise the profile of the EIS and Seed EIS (SEIS). In a letter to the Prime Minister, the Chairman and new Director General of the Association are asking for Government support for a campaign to promote the benefits of EIS and SEIS more widely. In the current uncertain economy, the importance of small and medium-sized businesses (SMEs) has never been greater – they are the very “backbone of the economy”. But small and start-up businesses are still finding access to finance a huge challenge. The role of banks in supporting SMEs has dwindled in recent years, but despite recent developments like peer-to-peer lending and crowdfunding, they have not been fully or effectively replaced.

Recent research has provided evidence that suggests the schemes are working as the Government intends. A majority of companies surveyed believed the schemes were essential in securing investment, with only 11% saying their investment would have gone ahead without the two schemes. 90% of companies believed their growth in staff numbers was as a result of EIS/SEIS funding. As ever, the Government is looking for evidence that the schemes represent a good return on their investment. The industry needs to demonstrate that in return for the generous tax reliefs, the Government is getting more back in tax revenues. I can think of no better way of showing how this works than the example of a recent Leisure business we funded: some £7 million of EIS funding went into the business, which is now turning over in excess of £10 million a year, generating a net profit of £1.5 million and employing over 200 people. For its £2.1 million investment (30% x £7million), the Government is getting back upwards of £1 million annually in corporate and employment taxes. That’s definitely one for the casebook!

We believe that if the schemes were easier to understand, they would be more widely used. EISA is also lobbying for simplification of the tax rules. Major changes to the rules introduced last year have, if anything, made the schemes even more complex. EISA is now calling for the greater complexity imposed by Brussels to be removed. Three examples of recent rule changes which it is thought emanated from the EU are the 7 year “life” for EIS companies, the lifetime cap of £12 million, and the so-called ‘sunset clause’, calling for the end of the EIS in 2025. Three months ago, the thinking was that no changes to the rules could be introduced until the UK was finally out of the EU. More recent intelligence suggests that the UK will be able to begin making changes to the rules as soon as Article 50 is triggered, i.e. this could happen as early as Spring 2017.

‘Lifting most or all of these restrictions would be a quick, simple and decisive step in the right direction to getting the UK economy performing post-Brexit’ said Mark Brownridge, Director General of the EISA. Lifting the restrictions combined with an enhancement of the tax relief available would really give the SME industry a shot in the arm! Watch this space.”