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