Research Reveals Widespread Ignorance Of Government-Backed Incentives

Most people that invest in stocks and shares are not aware of the benefits they could gain from government-backed tax breaks, new research has shown.

A poll carried out by YouGov for Crowdcube found that 87 per cent of investors do not know about the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS).

It found that 28 per cent of those who had invested in small firms in the past two years had used stockbrokers and the same number had invested via banks, while 14 per cent had done so via independent financial advisors and three per cent through crowdfunding platforms.

These investors could mostly be missing out on tax breaks provided by the EIS and SEIS, despite the fact that in the case of EIS the scheme has existed for 20 years.

EIS is designed to help investments in those businesses that are not listed on the stock exchange, with investments of up to £1 million being eligible for 30 per cent initial tax relief. This means investment in companies may be curbed as a direct result of the ignorance among potential investors of the incentives available to them.

SEIS is a more recent development, launched in 2012, with the aim of assisting businesses at the outset by offering investors 50 per cent income tax relief. In addition to this, both schemes provide investors with exemptions from capital gains tax and inheritance tax.

Commenting on the findings, Crowdcube co-founder Luke Lang said: "More needs to be done to make people aware of potential tax relief on their investments to boost British small businesses."

The issue has been raised at a time when the Department for Business, Innovation and Skills has been keen to find new ways to help SMEs get access to finance.

Its latest measure has been to plan the Small Business, Enterprise and Employment Bill, which will require lenders that reject applications from SMEs to make the details of these firms available to alternative providers of funding, subject to the consent of the SME in each case.

Expert Opinion

So much has been made in recent months of how small businesses should be viewed as the lifeblood of the economy, yet this is the latest study to suggest that many people are unaware of avenues which could provide SMEs with a significant helping hand. <br/> <br/>"These investment schemes are hugely beneficial for small businesses, but it seems that much more needs to be done to ensure that investors are aware of them and the potential rewards they could offer. <br/> <br/>"SMEs have huge growth potential but they require key support in order to ensure they can develop their skills and resources." Fergal Dowling - Partner