British businesses call on the Government to incentivise private investors to protect SMEs from collapse

LONDON, 8th JUNE 2020 – Buckworths, the UK’s only law firm working exclusively with start-ups and high growth businesses, has today sent a letter to the Treasury requesting the introduction of measures to incentivise angel investors to invest in SMEs that have been adversely impacted by the COVID-19 pandemic.

The letter, which is signed by a further 87 UK businesses spanning a range of sectors including hospitality and tech, calls on the UK government to incentivise private “angel” investors to invest in SMEs to help them repay COVID-19 debt and relaunch their businesses.

Buckworths and the 87 other signatories noted that investors providing matched funding under the Future Fund cannot claim EIS on their investment. They argue that this risks excluding earlier stage start-ups and retail, hospitality and leisure businesses from the Future Fund because they will be unable to secure matched funding from “angel” investors. This problem is exacerbated by the fact that many of these businesses have not qualified for CBILS and Bounce Back Loans due to the State Aid restrictions included in these schemes.

To rectify this issue, the letter calls for the Treasury to introduce a temporary tax relief scheme for “angel” investors that is similar in nature to the Enterprise Investment Scheme (EIS) and open to start-ups with a permanent establishment in the UK. This scheme should have a higher upfront rate of income tax relief and Buckworths believe that there should be no time limits on the age of the business so that more established SMEs in the retail, leisure and hospitality businesses can qualify. Introducing this scheme would not only help save a vast swathe of the start-up ecosystem from insolvency but would also see private investors take on the risk of supporting the SME sector thereby preventing the UK government from incurring further debt.

Michael Buckworth, Managing Director at Buckworths, says:

“The Government has provided billions of pounds of financial support to businesses of all sizes throughout the United Kingdom. We are now asking the Government to help SMEs who struggled to access COVID-19 support raise investment by creating a temporary new incentive scheme for “angel” investors.”

“The huge success of the EIS scheme in funding UK start-ups demonstrates that tax incentive schemes work. Replicating the EIS scheme on a temporary basis with lighter restrictions on qualification and use of funds would encourage the private sector (and not the Government) to take risk and would secure the future of our SME sector to the broader benefit of the British economy.”

LETTER TO THE TREASURY

The Rt Hon Rishi Sunak MP

Chancellor of the Exchequer

HM Treasury

1 Horse Guards Road

London

SW1A 2HQ

United Kingdom

 

8 June 2020

Dear Chancellor,

Re: Support for SMEs unable to access existing COVID-19 schemes

We are writing to you as a matter of urgency to express our concerns about the limited reliefs available to both earlier stage start-ups and retail, hospitality and leisure businesses who are struggling as a result of the COVID-19 crisis.

The Government has provided an unprecedented package of support to businesses to ensure that they remain viable, and to protect jobs. The Coronavirus Job Retention Scheme is estimated to have saved millions of jobs across the UK and over 800 applications have been made for the Future Fund for start-ups. The Future Fund initiative is vital in encouraging private sector investors to take on some of the risk involved in rebooting the British economy. While various COVID-19 relief schemes including CBILS and the Business Bounce Back Loan Scheme have provided important funding to tide over businesses throughout lockdown, the Future Fund provides growth funding to start-ups as they re-launch their businesses.

That said, the exclusion of Enterprise Investment Scheme (EIS) relief for individual “angel” investors providing matched funding as part of a Future Fund round significantly weakens the availability of the scheme. Most UK angel investors are reliant on EIS as a way of reducing their risk and rewarding them for making high risk investments in early stage businesses. Convertible debt (which is the chosen investment structure of the Future Fund) does not qualify for EIS. Consequently, many UK angels will not provide matched funding as part of the Future Fund, thereby excluding most earlier stage start-ups from the scheme.

Over £250m worth of applications were made to the Future Fund on the first day, demonstrating just how desperate businesses are for funding. Despite the numbers, our expectation is that many SMEs will have been unable to apply because they have been unable to secure matched funding. The problem is exacerbated by the fact that many of these excluded businesses are also not eligible for CBILS and Bounce Back Loans due to the State Aid restrictions applicable to those schemes.

The Government risks losing a generation of SMEs if it does not introduce a temporary tax relief scheme for angel investors. Our view is that this should be similar in nature to EIS and open to startups with a permanent establishment in the UK. It should have a higher upfront rate of income tax relief than EIS. There should be no restriction on repayment of COVID-19 loans and other debts incurred in the ordinary course of business (and particularly during the lockdown period) and no time limits on the age of the business so that more established SMEs in the retail, leisure and hospitality businesses can qualify. We also believe that it should be open to a wide categorisation of SMEs. Crucially this scheme would involve private investors taking on the risk of supporting our SME sector.

The Government must act now to incentivise angel investors to invest in businesses that have been unable to secure sufficient funding to avoid losing a huge cross section of the UK’s SME sector.

We look forward to discussing this further with your officials.

Yours sincerely,

Buckworths Limited

A3BC Limited

Aab UK Limited

Adept Accounting Limited

AEC Systems Limited

Affective Systems plc

Beauty Matching Engine Ltd

Blanc de Provence Ltd

Bleecker Burger Limited

Bleur Art Limited

Body Homage Limited

Body Machine Performance Studio Ltd

Caburn Group Limited

Castify Limited

Catapult Ventures Limited

Charles Barclay Limited

Crowd2Fund Limited

Davab Retail Limited

Devonport Capital Limited

Dream It Get IT Limited

Drone Madness Limited

Dubzoo Limited

E1 Hospitality Solutions Limited

Edit Suits Limited

Electric Group Limited

Enkay Digital Limited

Equipe Fitness Limited

Fan Inc Limited

Finblocks Limited

Fit2Trip Limited

Fitart Limited

Flick Games Limited

Floom Ltd

Footballnet Global Limited

Football Never Sleeps Limited

Gazzosa Holloway Limited

Glownet Limited

Grapedata Limited

Grovewood Insurance Services Limited

Gul & Sepoy Limited

Gunpowder Restaurants Limited

Hair Colour Clinic Limited

Handley Gill Limited

Hired by Startups Limited

Holofy Limited

Howdah Snacks Limited

Stuff International Design Limited

Sugar PR Limited

Syndikate Ltd.

Taylor Jones Partnership Limited

The Box Mind Limited

The Flash Pack Ltd

Trakx SAS

Travelai Ltd

Troubadour Goods Limited

Turning Earth Ceramics Limited

 

Hoxo Media Limited

JEC Accounting and Bookkeeping Services

Just-Street Limited

Keyless Technologies Limited

Infinity Circle By Design Limited

Ingle & Rhode Limited

IRJJJR Holdings Limited

La & Dickely Limited

Laurus Properties Limited

LF2 London Limited

Little Farm Limited

Live IT Group Limited

London Business Angels & Entrepreneurs

London Apprentice Limited

Mastered Studios Limited

Mellor & Smith Design Limited

Mercury FX Limited

Metier Digital Limited

Mumbai Foods Limited

My Beauty Matches Ltd

My Out Space

Nexuspro Limited

Njori Limited

NoBouquet Limited

OIO.Studio Limited

On The Mend International Limited

Pirate Startups

Plant Pot Limited

Positron Technologies Limited

Princeps Academy Limited

Raishma Ready To Wear Limited

Recipe Products Ltd

RightRooms (Global) Limited

Robert & Victor Limited

Secret Spa (London) Limited

SET for Business Limited

ShopUpp Limited

Six & Flow Ltd

SK Advertising Limited

Smartess Interiors Limited

SoBold Limited

Social Event Factory Limited

Stakk Limited

Strawberry Energy London Ltd

Student Nannies Limited

V-Esq Ltd

Venturr Limited

Weavers

Wecake Limited

Workout Online Limited

Xenith Document Systems Limited

Zia Lucia Limited

12 Boxes Limited

40 Ft Brewery Limited

 

ENDS

About Buckworths

Buckworths is the only UK law firm working exclusively with start-ups and high growth businesses. Founded in 2011, the firm has offices in London and Manchester and advises start-ups in a range of sectors with a particular emphasis on tech, fin-tech, and restaurant businesses. Buckworths’ latest whitepaper on the impacts of COVID-19 on British SMEs and the perception of government relief schemes can be accessed here: Rebooting British Businesses Post COVID-19.

 

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