Mercia EIS Funds

Budget: keep tax incentives to encourage investment in SMEs urges VC fund manager

Mark Payton, MD of Mercia Fund Management reveals his hopes for this year’s budget:

In the context of an improving economic situation, and with Small to Medium Enterprises (SMEs) demonstrating that they are the back bone of growth to employment in the UK, what we seek from government is stability and continued support.

The coalition simply have to maintain the tax incentives for private investors seeking investment opportunities via Enterprise Investment Schemes (EIS) and, most importantly Seed EIS (SEIS) as this has been shown to be the provider of capital behind many of the new emerging businesses in the UK over the last two years.

These valuable investment structures (SEIS & EIS) have brought in over £1 billion in investment capital in 2013 into businesses starved of capital from sources such as bank finance.

We expect the chancellor to make a commitment in this budget to continue with SEIS and EIS providing SMEs with investment capital for growth and for the Chancellor to demonstrate a desire to improve SEIS by seeking to increase its investment limit from £150,000 per investee to £250,000. A strong message to the next generation of entrepreneurs within the UK.

This investment is essential for the support in R&D; to drive future growth and thus product export. The question on our minds in regard to the 2014 Budget is not how the deficit will be reduced and when, but how the government plans to continue its support for growth in the UK economy, with a particular emphasis on SMEs.

Whilst larger firms who employ greater than 1,000 employees continue to downsize their work force, SMEs continue to expand – providing approximately 50% of the employment within the private sector work force.

Companies within the Mercia Fund Management investment portfolio continue to be concerned with the burden of red tape, complexities of the taxation system and continued difficulties in accessing finance for growth. All three are, and should continue to be, a focus for a government with private sector growth at its core.

If the government decides to drop SEIS or any changes to EIS, this only goes to send a message that the government has lost its way – what is required is stability and continued support.

From perfect storms, come opportunities. The UK has enviable support structures through SEIS and EIS investment, and direct support such as R&D; tax credits and the patent box – admired across Europe and the US. Coupled with this, is a growing entrepreneurial culture and an innovative work force, particularly in key sectors such as digital media, gaming and e-commerce. The chancellor and prime minister need to maintain their support for this community as we look to provide solid employment for both the younger generation and experienced entrepreneurs emerging from what has been a deep and drawn out recession – what is required now is stability and continued support.

As new business registrations rise, we as a fund manager are seeing a marked increase in new business owners seeking start up and growth capital. The SEIS scheme is an exceptionally innovative solution to private individuals supporting this sector. However, the issue remains what of 2015/16 – will the coalition keep its nerve and continue to support SEIS (rumored to be dropped – unwisely) and EIS? Our message to government remains:

(i) keep SEIS and enshrine it as a stable structure that is here to stay, but raise the maximum investment that an SME can receive from £150,000 as it is today to £250,000

(ii) keep to commitments in regard to the patent box and R&D; tax credits

(iii) keep to the valuable EIS structures as is, and

(iv) keep to their initial commitment of the removal of unnecessary red tape and restrictions