New tax changes implemented this week will back founders to the tune of £100 million a year, according to the Government.
The changes implemented at the start of the new tax year include significantly expanding the number of companies eligible for the Enterprise Management Incentives (EMI) scheme, further supporting companies to attract and reward talent.
They also include doubling the amount a company can raise through the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) to boost investment through additional tax relief.
The changes, announced in Rachel Reeves’ Budget last year, are expected to support around £100m of additional investment a year.
The EMI is a world-leading tax advantaged share scheme which allows eligible companies to offer their employees options to acquire tax-advantaged shares. EIS and VCT provide a range of tax reliefs for investors to encourage investment in higher-risk, early-stage companies that face the biggest challenges in accessing growth capital.
“I am backing business with a more active state that’s making big commitments to industry. I have taken steps to unlock £100 million a year for new investment in the businesses founded by our wealth creators so they can access the finance critical to their success,” said Chancellor Reeves.
The expansion to EMI will include quadrupling the gross assets test from £30m to £120m while both the employee limit, and company share option limit, will be doubled from 250 to 500, and £3m to £6m, respectively.
This is expected to support around 1,800 of the highest growth scale-up companies in sectors including financial technology, life sciences, and AI over the next five years, allowing them to reward an estimated 70,000 employees.
The EIS and VCT lifetime company investment limits will double to £24m, and the annual company investment limits will increase to £10m. The gross assets test will increase to £30m before share issue, and £35m after.
Income Tax relief available for those investing in VCTs will be reduced from 30% to 20%, to better balance the amount of upfront tax relief compared to EIS, and incentivising funds to seek out higher returns to ensure they are targeting the highest growth companies.
The government is also supporting scaleups to list in the UK as the Chancellor announced at the Budget, in an international first, UK Listing Relief – a three-year exemption from Stamp Duty Reserve Tax for companies listing in the UK.