E ISA
Dec/Jan 2021
WHAT MIGHT 2021 HAVE IN STORE
FOR EIS AND SEIS Mark Brownridge, Director General at EISA, reflects on 2020 and explains why he remains optimistic that 2021 will be a good year for tax-efficient investing
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s coronavirus continues to dominate almost every aspect of our lives, the stark realisation of the economic impact of the coronavirus epidemic is being laid out vividly before us.
At the time of writing, the number of people claiming benefit in the UK has risen by 23%, GDP is down 20%, and UK public debt is now larger than the size of the UK economy. All hopes of a V shaped recovery seem to have dissipated and we still face huge uncertainty. Oh, and you can throw in the still unresolved Brexit situation just for good measure. Two words sum things up. Doom and Gloom. For startups and scaleups, the funding situation is dire. Positively, there is much appreciation of the role the UK’s start-ups and scale-ups can play in reigniting growth in the UK amongst Government and Westminster and perhaps this will spark a renewed and sustained interest in supporting the UK’s SMEs. We believe that there is momentum behind the EIS and SEIS cause and expect to see a number of measures aimed at growth capital introduced either early in 2021 or at the Budget in March.
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WHERE ARE WE NOW? But let’s rewind and consider where the EIS and SEIS industry currently stands. Firstly, the usual end of tax year fundraising season in 2019/20 took a massive hit from the first lockdown. This is normally the biggest fundraising time of the year for EIS and SEIS investments. As a result, for Covid19 to hit then, had a devastating effect on fundraising with investors seemingly taking risk off the table and not being prepared to invest at such an uncertain time. EIS and SEIS fund managers report that their fundraising fell by as much as 60-80% of what they were expecting. The domino effect of this has unfortunately fallen on the start-up and scale-up businesses that fund managers had identified for investment, with many being left with either severely cut allocations or none at all. As we begin to focus in on the 20/21 tax year end, we are starting to see an uptick in interest from planners and advisers and it seems as if clients are coming back to the risk table and taking tentative investment steps. This is to be welcomed. After all, one of the side effects of Covid19 is that it has created plenty of demand for equity funding from companies as well as lower valuation points so there are a number of exciting companies available for investment at great value.
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