EIS Industry Report 2019/20

58 STRENGTHS WEAKNESSES OPPORTUNITIES THREATS Research shows many investee companies crediting both SEIS and EIS with helping them to develop their product or service in a way that would have been impossible without that support. The risk to capital condition is expected to depress levels of investment in the short term, although investors, managers and investee companies appear to be already getting to grips with the changes. A view is forming that UK shares are relatively cheap, meaning that EIS- qualifying companies could be ripe for investment. The long- term impacts of Brexit on British businesses remain unclear, and could stymie investment opportunities if companies adopt a cautious approach. A growing number of new entrants to the EIS funds market in recent years has increased the diversity available to investors and underscored the continued confidence among fund managers in EIS. The proportion of IPOs and acquisitions compared to the number of companies receiving fundraising remains small, highlighting that EIS cannot be viewed as a short-term investment. The number of companies raising funds through EIS continues to rise, providing investors with a range of investment opportunities. The government’s plans to reform and perhaps remove the annual allowance taper for high earners in the public sector could reduce the pool of potential EIS investors. The rising number of knowledge-intensive companies means there is ample opportunity for more research-heavy sectors to dominate the EIS market in the future. Despite the creation of a film fund backed by the British Film Institute, many companies in media and entertainment continue to struggle with the new risk to capital requirements. The government's new knowledge- intensive EIS approved fund structure is included within the Finance Bill 2019- 20, underlining the commitment to these types of investment. A failure to provide greater transparency from managers could inhibit advisers’ willingness to recommend EIS to their clients. Most advisers have not seen any change in attitude as a result of the new risk to capital condition, suggesting appetite remains strong for EIS investments. Investment risk remains a concern for advisers, along with exit risk, which will only continue due to the risk to capital requirements. Advisers are increasingly open to recommending EIS products for younger clients, with 28% now considering 45-55-year-olds to be most suitable for the scheme. With tax planning and IHT planning topping advisers’ reasons for recommending EIS, future changes in this area - particularly under a Labour government - could restrict opportunities for EIS investment. SWOT ANALYSIS OVERVIEW OF EIS 1 https://assets.publishing.service.gov.uk/ government/uploads/system/uploads/attachment_ data/file/746599/OFFICIAL_SENSITIVE_-_ BPE_2018_-_statistical_release_FINAL_FINAL.pdf 2 https://eisa.org.uk/case_study/ten-lifestyle-group/ 3 https://www.investmentweek.co.uk/investment- week/interview/3078630/2018-winner-education- initiative-of-the-year 4 https://www.gov.uk/government/publications/ income-tax-relief-and-the-enterprise-investment- scheme-approved-knowledge-intensive-fund/ income-tax-relief-and-the-enterprise-investment- scheme-approved-knowledge-intensive-fund 5 https://assets.publishing.service.gov.uk/ government/uploads/system/uploads/attachment_ data/file/820251/HMRC_research_report_551_ understanding_digital_tech_business.pdf 6 https://www.ftadviser.com/investments/2019/07/25/ investments-slow-amid-brexit/?page=2 7 https://researchbriefings.parliament.uk/ ResearchBriefing/Summary/RP10-62#fullreport 8 https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX:32011L0061 9 https://www.ftadviser.com/investments/2019/07/05/ how-tighter-investment-regulations-are-benefiting-the- uk-screen-industry/?page=2 10 https://citywire.co.uk/wealth-manager/news/ eis-firm-makes-key-media-investment-after-hmrc- clampdown/a1221395 11 https://www.wealthclub.co.uk/enterprise- investment-scheme/enterprise-investment-scheme- offers/acamar-films-eis/ 12 https://www.professionaladviser.com/ professional-adviser/opinion/3078252/jack-rose- get-back-to-what-you-know 13 https://eisa.org.uk/3-reasons-investors-should-be- happy-about-the-new-rules-for-eis-and-3-exits-that- prove-it/ 14 https://www.ftadviser.com/ investments/2019/03/11/eis-or-vct-the-differences- and-similarities/ 15 https://www.gov.uk/government/news/nhs- pensions-for-senior-clinicians-new-changes- announced-to-improve-care 16 HMRC EIS1 Forms REFERENCES OBJECTIVES APPENDIX LEARNING Identify the main developments and news in the EIS market in 2019: Covered on pages 9-13. Fundraising remains resilient; successful advance assurance requests fallen; HMRC has clarified the advance assurance process. Understand the developing impact of rule changes to EIS: Covered on pages 14-15. Experts predict a reduction in future investment, but expect it to be a blip; recent case law shows the risks associated with HMRC guidance. Be aware of the key strengths, weaknesses, opportunities and threats in the EIS market: Covered on page 58 in a SWOT analysis table. Describe recent changes to key EIS metrics, such as typical fees and underlying investment sectors: Covered on pages 20-22. Technology has become a dominant sector; AMC and Initial Charge for investee companies have risen. Recognise how the adviser community is currently interacting with EIS and its areas of confidence and concern: Covered on pages 38- 46. Advisers are increasingly confident of greater focus on this market; they want to see better transparency from managers. Be able to benchmark current products and providers against each other on key investment criteria: Covered on pages 54-55. Key metrics include investment objective; target number of holdings; minimum investment; and main fees charged. 59