Chancellor George Osborne will crack down on EIS schemes and the companies eligible for investment in the upcoming March Budget, predicts one manager.
Andrew Aldridge, head of marketing at Deepbridge Capital, says the next 12 months will see more changes to the companies that are eligible for EIS investment.
“We will see a tightening of the rules further, it will be a key focus for the next 12 months,” he says.
Osborne is focused on ensuring that EIS funds are investing only in companies that are creating jobs or generating innovation, and will adjust the rules to focus on that, says Aldridge.
“Over the past five or six years there have been steep inflows into EISs. George Osborne wants to ensure investors are rewarded for taking a risk on investing in small UK businesses, but some EIS funds are not really taking a risk,” he adds.
Aldridge predicts the industry may see more HMRC retrospective action for companies that are not in the spirit of EIS.
HMRC has recently cracked down on film partnership schemes, which it sees as tax avoidance schemes.
In one case, more than 150 investors claimed tax relief after investing in Ingenious Media schemes and almost 10 years later were served with payment notices by HMRC.
“We are going to see more similar action on other companies,” says Aldridge.
In the Budget last year Osborne announced a limit on the age of companies that were eligible for investment in EISs, with future EIS or VCT cash injections limited to firms less than 12 years old.
At the time Osborne said he wanted “to ensure [EIS schemes] are compliant with the latest state aid rules and increasing support to high growth companies”.