Wednesday 12th August 2020
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Budget changes threaten funding for region’s tech sector

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New stricter rules on government initiatives which offer tax breaks to small businesses to be in the introduced in this year’s Finance Bill could jeopardise growth plans for technology firms across the East of England, accountancy firm Baker Tilly is warning.

Due to EC direction, new rules affecting the Enterprise Investment Scheme (which offers tax breaks to investors buying shares in small private companies), and Seed Enterprise Investment Scheme (which is aimed at those investing in even smaller companies) were introduced in the recent Summer Budget and Finance Bill.

Both schemes, along with Venture Capital Trusts (VCTs), have raised billions of pounds of funding for small businesses, and helped drive investment in many companies – particularly in the tech sector.

These new rules impose:

•             A limit on the age of a company that can apply for EIS or VCT finance. The Government had initially proposed an age limit of 12 years, but this has now been reduced to seven years in the Finance Bill, albeit with some exceptions.

•             A limit in the total lifetime risk finance funds which are raised by a company of £12m - £20m for knowledge intensive companies.

•             The rule that no VCT or EIS funds are to be used for the acquisition of other companies or trades.

Stephen Duffety, office managing partner at Baker Tilly in Bury St Edmunds said: "These new rules will only add to the existing complexity of these important and successful schemes, and my specific concern is that high growth technology businesses in the Silicon Fens and across the East of England will be hit hard by this new legislation."

"These new rules could deter acquisitions made to compliment or further develop existing technologies or create wider market applications, and yet ironically it is these very companies that George Osborne is keen to help grow in the UK.  My fear is that the Government may have inadvertently switched off the tap to a vital source of funding for many businesses in the region."