VCT investment rises 6% in a year as it picks up slack from falling EIS investment

  • VCT investment up £24m as EIS falls by £40m
  • Government ‘could do much more’ to help unlisted business raise funds
Investment in unlisted businesses through Venture Capital Trusts (VCTs) rose by 6% (£24 million) in the past year*, hitting £430 million.
The statistics on VCT investment, released by HMRC, show that VCTs are picking up the slack left by the fall in investment through the Enterprise Investment Scheme (EIS). EIS investment fell by 2%, or £41 million, in the past year.
In the last two years, the Government has narrowed the scope of the EIS scheme. This has meant that some lower-risk EIS investments that were once popular – such as renewable energy or waste management projects – are no longer allowed. The EIS scheme is now focused on higher-risk growth businesses.
Private investors may now be looking to VCT investment instead, as it allows them to spread risk by investing in a larger group of businesses, rather than one individual business as under EIS.
The Government could do much more, both with the VCT and EIS schemes, to help unlisted businesses raise funds.
Tim Fussell, Partner in Moore Stephens’ Owner Managed Business group, comments: “Investors may be moving towards VCTs as the EIS scheme has been made less attractive for them in recent years.
“The Government must be careful to protect incentives for investing in unlisted businesses – they are a vital growth driver for the economy. Making schemes like EIS and VCT less generous risks choking off the flow of funding for growing businesses.
“There is more the Government could be doing to encourage investors to look at smaller businesses. Whilst that might involve a very small hit to tax receipts now, the economic growth and increased employment those businesses will create in the future should pay that back many times over.”
* Year ended April 4 2016, "Venture Capital Trusts: distribution of investors by size of investment (December 2017)", HM Revenue & Customs.

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