Capital can be the lifeblood of early-stage startups, enabling them to navigate the often tumultuous waters of their initial years. It can empower companies to invest in research and development, talent acquisition, and market expansion.
In the UK, venture capital schemes like the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) play a pivotal role in the tech funding ecosystem. In this blog, we’ll briefly explain what they are and look at the latest findings in HMRC’s annual report.
(S)EIS briefly explained:
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are government initiatives designed to incentivise investment in early-stage, higher-risk businesses. These initiatives offer significant tax reliefs to investors who invest in qualifying companies, thereby encouraging the flow of much-needed capital into the UK startup ecosystem. EIS offers income tax relief of up to 30% on investments in qualifying businesses, while SEIS offers a more attractive 50% tax relief for investments in smaller, higher-risk qualifying businesses. These schemes have proven to be invaluable resources for tech startups seeking to raise capital and achieve their ambitious growth plans. More details on EIS & SEIS can be found in our last (S)EIS blog.
(S)EIS investment on the rise:
The 2020/21 tax year saw a 12% drop in the funds raised vs the previous tax year, no doubt partly due to the Covid-19 pandemic. So how did this perform in the following year? To answer this, we’ll dive into HMRC’s annual statistics for the 2021/22 year which were published earlier this week, starting with the headlines as a snapshot in the below table:
Breaking down the numbers:
Within these numbers, there are two key insights it’s worth highlighting for those in the tech sector:
EIS/SEIS investment on the rise - 4,480 companies raised £2,305m in funds under the EIS scheme which is both the record number of companies that raised via EIS and the record amount in terms of the total amount raised since the introduction of the scheme in 1994 and a 39% increase in the YoY funding vs 2020/21. SEIS also saw a rise, with 2,270 companies raising a total of £205m under the SEIS scheme, with 2,270 being the highest since the introduction of the scheme in 2012.
Tech sector continues to benefit - Whilst HMRC use their Standard Industrial Classification (SIC) codes to classify the industries that each company raising EIS falls into, which are admittedly very broad, it’s clear that the tech industry is one of the largest winners from this scheme. This is evident with Information & Communications being the largest proportion of investment under both schemes (35% for EIS and 40% for SEIS).
Of course, it’s worth noting that we are a year behind with these statistics, but the data underscores the importance of these schemes in the UK tech landscape and its positive news to see the rise. They continue to play a vital role in supporting the growth and development of early-stage businesses across the nation.
What Next?
At UHY (East), we understand that the right funding and support are crucial to the growth of a successful tech venture. Within our Tech & High Growth department, we can help businesses navigate the funding landscape and support at various stages of their growth journey. If you would like to discuss EIS/SEIS or any broader topics, please contact James Foster at j.foster@uhy-uk.com or your usual UHY advisor for further advice.
