HMRC Key Statistics – May 2021
HMRC released the annual statistics relating to EIS and SEIS on 27th May 2021 and encouragingly they show the schemes to be in rude health with yet another year on year increase in the headline figures.
The statisitics relate to the 2020/2019 tax year so we won’t know the full impact of Covid on EIS and SEIS until the next set of figures are released (which is likely to be in May 2022) but funding from EIS increased to £1.905Bn in 2020/2019 up from £1.867Bn in 2019/2018 with an additinoal 155 companies receiving funding from the scheme (4,215 in 2020/2019 from 4,060 in 2019/2018). For SEIS, the numbers remianed largely flat at £170M in 2020/2019 compared to £171M in 2019/2018.
Unsurprisingly, the majority of investment (33%) was received by companies in the Information and Communication sector (HMRC continue to use SIC codes to identify sectors) and just 4 sectors (the Manufacturing, the Wholesale and Retail Trade, Repairs, the Information and Communication, the Professional, Scientific and Technical sectors) together account for around £1,352 million of investment and made up 71% of all EIS Investment. Once again, it would be useful if HMRC drilled down further into those sectors to give us a better understanding of what real life sectors are receiving EIS and SEIS investment as the above SIC codes are rather meaningless.
As mentioned, we wont get the important 2021/2020 stats until next year but a useful leading indicator is the number of Advance Assurance applications HMRC received in 2021/2020 which they do publish. This shows applications are down from 3,440 in 2020/2019 to 3,080 in 2021/2020. SEIS however shows an increase in applications from 2,755 in 2020/2019 to 2,900 in 2021/2020 perhaps reflecting Covid has hit earlier stage companies much harder than those at a later stage as also identified in our recent report
Another key finding from our survey was that EIS funding continues to be unevenly distributed across the regions of the UK. This is also bourne out by the HMRC stats showing that the proportion of the amount of investment in companies registered in London and the South East was 66% in 2019 to 2020.
All in all, the numbers don’t provide us with any great surprises except for providing important reaffirmation that the schemes deliver funding to exactly the sectors and stage of company that they are designed to. With the 2025 sunset clause hoving ever closer into view, this is another timely reminder that the schemes have a 27 year track record of delivering equity funding from the private sector to those exciting startups and early stage businesses who the UK economy will be relying on in a post Covid environment. Unless the sunset clause is removed (this was an EU State aid requirement), EIS and SEIS face being slowly wound down.
HMRC Key Statistics – May 2020
HMRC have announced the EIS and SEIS data for the 2018/2019 tax year and they reveal some important trends and learnings.
As expected, the 2018/2019 figures show funds raised through EIS are down from £2.1Bn in 2017/2018 to £1,824Bn in 2018/2019 (although this figure is likely to be rounded up once all applications are processed).
2018/2019 is the first full year that captures the risk to capital changes made at the Patient Capital Review that removed asset backed EIS investment to ensure EIS was focused on entrepreneurial seeking to grow and develop. Given that the asset backed section of the EIS market traditionally raised in the region of £300-£400M it is perhaps surprising, and at the same time very pleasing, to see such a small fall in the total investment into EIS. My own estimates were of a far deeper cutback. It was suggested at the time the risk to capital condition was introduced that those investors who were purely tax motivated and had been weaned on asset backed deals would leave the EIS market and invest their money elsewhere but the figures suggest these fears have largely been misplaced. This is further backed up by the fact whilst the provisional figures reveal a decrease in the number of investors claiming tax relief under EIS, from 36,915 in 2017/2018 and 34,145 in 2018/2019, HMRC estimate that the true figure for 2018/2019 (once all the figures are available) will be 37,985 – an increase on the previous year.
This is a hugely positive sign and testament to investors, financial planners and wealth managers for getting to grips with the substantial changes so quickly.
There is a more worrying decline in SEIS investment down from 2,430 companies raising £195 million in 2017/2018 to 1,985 companies raising £163 million, although again HMRC estimate this figure will trend up to 2,080 companies raising £169 million. Again this fall is attributed to the risk to capital condition and is perhaps a reflection of the perceived greater risk of investing in very early stage companies.
Another statistic that stands out is the relatively sharp fall in companies raising funds through EIS for the first time. The long term average is 53% but in 2018/2019 this fell to 28% in 2018/2019. Again, as HMRC outline, it would seem that this is as a consequence of the risk to capital condition. Old style asset backed and capital preservation EIS investments were often predicated on setting up new companies to hothouse the investment so the risk to capital condition seems to have been successful in flushing these out.
Investment sizes in EIS also seem to be on the rise, perhaps partly fuelled by the higher limits for new Knowledge and Intensive Companies. It is pleasing to see EIS being able to play a part at various stages of a company’s development, all the way from seed stage right through to later stage, almost pre Series A funding.
Other than this, the figures largely follow last year’s trends. Information and Technology is still the industry sector receiving the lion’s share of investment and London and the South East still dominates geographically (this is an area that, as an industry, we need to address to ensure a more even spread of investment across the country although these figures are still quite possibly skewed given that the rely on where a company is incorporated and not necessarily where it actually trades from).
One final positive sign is that the number of Advance Assurance requests has also increased in 2019/2020 perhaps reflecting the increased interest in EIS and SEIS funding by companies. At a time when small businesses will need as much funding and support as possible we certainly hope and believe EIS and SEIS can play a significant part in realising these companies growth plans and mentoring them through the post coronavirus economic situation.
All in all, the statistics show how resilient EIS and SEIS are having navigated a period of upheaval and legislative change. Given the scope and far reaching changes that were introduced by the risk to capital condition in 2018, the statistics show that the EIS and SEIS market has remained not only stable but positively buoyant. New challenges are of course now being presented, in the form of the coronavirus pandemic, but no doubt EIS and SEIS will rise to this challenge too and EISA continue to lobby hard to ensure EIS and SEIS can play a significant part in supporting small, innovative companies towards recovery and growth.
Full Report here
EISA Director General