Europe Fintech

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

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 fintech, hospitality, and retail, 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 of Buckworths said:
“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:

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
Adept Accounting Limited
AEC Systems Limited
Affective Systems plc
Bleecker Burger Limited
Bleur Art Limited
Body Homage Limited
Castify Limited
Caburn Group Limited
Catapult Ventures Limited
Charles Barclay Limited
Crowd2Fund Limited
Davab Retail Limited
Devonport Capital Limited
Dream It Get IT Limited
E1 Hospitality Solutions Limited
Edit Suits Limited
Electric Group Limited
Enkay Digital Limited
Fan Inc Limited
Finblocks Limited
Fitart Limited
Fit2Trip Limited
Flick Games 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
Hired by Startups Limited
Holofy Limited
Howdah Snacks 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

Little Farm Limited
LF2 London Limited
Live IT Group Limited
London Business Angels & Entrepreneurs
Handley Gill Limited
London Apprentice Limited
Mastered Studios Limited
Mellor & Smith Design Limited
Mercury FX Limited
Mumbai Foods Limited
My Beauty Matches Limited
My Out Space
NoBouquet Limited
OIO.Studio Limited
On The Mend International Limited
Pirate Startups
Plant Pot Limited
Princeps Academy Limited
Raishma Ready To Wear Limited
RightRooms (Global) Limited
Robert & Victor Limited
Secret Spa (London) Limited
SET for Business Limited
SK Advertising Limited
Six & Flow Ltd
Smartess Interiors Limited
SoBold Limited
Social Event Factory Limited
Stakk Limited
Student Nannies Limited
Stuff International Design Limited
Taylor Jones Partnership Limited
The Flash Pack Limited
Trakx SAS
Troubadour Goods Limited
Turning Earth Ceramics Limited
Weavers
Wecake Limited
Workout Online Limited
Xenith Document Systems Limited
Zia Lucia Limited
12 Boxes Limited
40 Ft Brewery Limited

Author

  • Editorial Director of the The Fintech Times

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