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Oxford Capital calls on UK government to fine-tune Enterprise Investment Scheme

Enterprise Investment Schemes will become the investment vehicle of choice for promoting growth and enterprise in smaller, higher-risk, unquoted companies if the government takes the fi

Enterprise Investment Schemes will become the investment vehicle of choice for promoting growth and enterprise in smaller, higher-risk, unquoted companies if the government takes the final steps to complete its proposals in 2009, according to venture capital firm Oxford Capital.

The government indicated at the time of the Pre-Budget Report that it will bring forward further enhancements to the EIS scheme in the 2009 Finance Act.

However, Oxford Capital believes it needs to look again at its plans for convertible loans within EIS funds if the proposals are to be an unqualified success.

Richard Hepper, finance director of Oxford Capital (photo), says: ‘HMRC and the Treasury must be congratulated on the huge commitment they made to undertake such an effective consultation and review of EIS in 2008. Their ideas and enthusiasm for EIS as the government’s favoured scheme for encouraging investment in innovative businesses is undoubted and at the dawn of 2009 I’d like to see them make a New Year’s resolution to take the last few steps to really make a difference.’

Oxford Capital says it particularly welcomes the government’s plans to relax the current requirement that at least 80 per cent of the money raised by the share issue must be employed within 12 months of the issue by allowing a two year window for investment.

Hepper believes this proposal will reduce the frequency with which growing businesses need to seek new funding, enabling them to focus more fully on developing their businesses.

Oxford Capital also supports the government’s plans to extend the period over which investors can carry back income tax relief from six months to one year up to the normal annual investment limit. This offers greater flexibility for investors to offset their investments over a longer period of time and removes restrictions on the amount which can be offset.

Less welcome, however, is the government’s plan to prevent supportive loans to a company being converted into equity at a later date and benefit from EIS relief. Hepper argues that converting debt into equity is a common investment tool used by venture capitalists and this restriction puts Oxford Capital and other investment managers which favour EIS at a disadvantage.

He also questions the government’s decision to delay any improvements to the EIS fund regime by setting up another working party to review the options.

‘EIS Funds are a proven means of diversifying risk for investors by spreading their investments across a range of companies at different stages of development and working in different sectors,’ he adds. ‘The approach of EIS funds has proved highly successful at promoting the government’s ambition to encourage investment in new enterprise and we would encourage them to act now to make further improvements to the regime in 2009 rather than delaying decisions through a further working party.’

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