There has been a fair amount written already about Kwasi Kwarteng’s mini-Budget. But it’s OK, you can keep reading. This post is not about income tax cuts, U-turns, market reactions or any of that stuff.
This is a look at some of the other aspects of the government’s growth plan that might be of interest to founders. And let’s be clear, it was always likely that a government hell bent on growth (almost to the exclusion of all else) would offer up some policy initiatives that would please the founder community.
In particular, the focus here is on the generous extensions and simplifications made to EIS and VCT schemes as well as positive changes to SEIS and CSOP schemes. It’s may be a bit of an alphabet soup, but it’s one that the government hopes will be increasingly tasty for founders.
While it looks to shrink the state (and good luck with that particular Sisyphean task), the new government has been pretty frank and clear on its ambitions to encourage growth in the private sector. This it sees as the main engine for driving its hoped-for economic boom.
Achieving an annual growth rate of 2.5% is never easy. And it will be impossible if more isn't done to encourage higher levels of business investment. Thus, amid the warren full of tax rabbits pulled from his hat, the chancellor announced extensions to several popular investment tax relief schemes.
EIS and VCT
Both the enterprise investment scheme (EIS) and venture capital trust (VCT) schemes are hugely popular and well used schemes that offer tax reliefs to individual investors in small businesses to help such businesses raise money at a time when larger investors may not be interested.
Before Kwarteng’s mini budget the plan was for these schemes to be wond down and phased out in April 2025. This plan to allow these schemes to lapse was a cause of concern across the founder community and the announcement that the schemes would not be wound up was widely welcomed.
There was also good news for slightly larger firms seeking to raise growth capital, in that from April next year the amount companies can raise through the seed enterprise investment scheme (SEIS) is being increased from £150,000 to £250,000.
There are also changes being made to qualifying criteria to make the scheme more generous with the the gross asset limit increased to £350,000 (up from £200,000) and the limit on the age of the company’s qualifying trade increased from two to three years.
And for investors, the annual limit on the amount of SEIS investments any one individual can make is being doubled to £200,000 for each tax year.
The ICAEW website explains what this means for investors “As the percentage of the investment on which tax relief can be claimed is 50%, this could potentially allow investors income tax relief worth £100,000 per year, plus associated capital gains reinvestment relief, provided the conditions are met.”
Share option schemes are a great way for businesses to attract and retain talent, something that’s increasingly important as the war for talent continues to rage.
From next April, the value of shares that each employee can be awarded under the company share option scheme (CSOP) is doubling from £30,000 to £60,000.
One of the appeals of CSOP is that there are few limits in terms of the type or size of company that can use it and there is clearly an anticipation that this will help to kick off a new era of employee share ownership.
The government is also removing conditions on the types of shares that can be awarded under the scheme, with the intention of bringing this type of scheme more closely into line with the highly popular Enterprise Management Incentive (EMI) scheme.
None of these measure by themselves will be enough, but all of them are welcome and will encourage more investors to put their money behind the many brilliant startups and scaleups that will be the key drivers of any growth boom.