U.K. Looks at Expanding Tax Breaks for Investors in Startups

(Bloomberg) --

The U.K. government is considering policy changes to a popular program that provides preferential tax treatment for early-stage investments into tech companies, which could make it easier for companies to raise larger rounds of funding.

Talks among regulators about potentially expanding the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme are in preliminary stages, according to people familiar with the matter, who asked for anonymity because the discussions are private.

A U.K. Treasury spokesperson said the government keeps all tax relief policies under review in order to ensure they meet policy objectives in a fair and effective way.

Both the EIS and SEIS incentivize individual investors to back new companies by offering significant tax relief.

Under the SEIS today, for instance, a company can raise as much as 150,000 pounds ($188,000) from individual investors, who would then be able to receive a reduction on their income tax liability with favorable capital gains treatment. But some in the startup industry have advocated for a cap of 250,000 pounds, allowing companies to more easily raise early funds.

The U.K.'s departure from the European Union and accompanying restrictions on state aid allows for reforms such as this, the people said; one added that it's more likely significant changes will be made to the SEIS rather than the EIS.

Since the EIS was launched in 1994, nearly 33,000 companies have netted a total of about 24 billion pounds in funds, U.K. government data show, and from SEIS's start in 2012 to 2013, about 14,000 companies have received about 1.4 billion pounds.

In a February report from data platform Beauhurst and venture firm SFC Capital, it was argued that changes to the SEIS were needed to increase the number of early U.K. venture investments.

“SEIS, as well as EIS, the tested and proven tools of investing in innovation, have to be reinvented, improved, and reinforced before it is too late,” the report's authors concluded.