EIS Industry Report 2018/19

11 MARKET UPDATE FUNDRAISING UPDATE A NOTABLE DIP FOR EIS The latest HMRC statistics for EIS fundraising, released on 31 May 2018, reveal a dip in both the amount raised and the number of companies raising funds for the first time via the scheme. In 2016-17, 3,470 companies raised nearly £1.8bn of funds under the EIS scheme - an 8% decrease on the previous year. In 2015-16, 3,545 companies raised £1.95bn of funds. The 1,490 companies raising funds for the first time in 2016-17 raised a total of £768m. The statistics give an initial indicator of the EIS market for the 2016-17 tax year. However, the latest figures are merely estimates. The data was released in May, only two months after the end of the tax year. This means that there will be many applications still in HMRC’s system, and there will no doubt be upward revisions in next year’s data release. To put this into context, when HMRC released its stats for 2015-16 in May 2017, the amount raised via EIS totalled £1.89bn, which is 3% lower than the data that we have today. However, the 8% dip for 2016-17 fundraising on the previous year is significant and is unlikely to be accounted for purely on the basis of delayed receipts. When HMRC released data for 2015-16 last year, fundraising was only showing a 2% dip on the previous year. Although more applications will be registered in HMRC’s system over the coming months, we must also consider the impact of the 2015 Autumn Budget on EIS fundraising. The 2015 Budget announced a number of significant changes to EIS rules. Changes included the requirement that EIS funding must be used predominantly by younger businesses for the purposes of ‘growth and development’. This restricted a number of businesses from continuing to qualify, particularly older businesses and those which had a focus on capital preservation. The 2015 Budget also impacted EIS being used for MBOs, which were previously permissible. In addition, all energy generation activities were excluded from 6 April 2016. Prior to that, renewable energy had dominated the EIS market for a number of years. The changes from the 2015 Budget were built upon further in the 2017 Autumn Budget, where the ‘risk- to-capital condition’ was introduced. AMOUNT OF FUNDS RAISED THROUGH EIS 1,000 1,500 2,000 2,500 Amount of invesrment (£m) 500 0 1993-94 2003-04 1996-97 2006-07 1999-00 2009-10 2013-14 1994-95 2004-05 1997-98 2007-08 2000-01 2010-11 2014-15 1995-96 2005-06 1998-99 2008-09 2001-02 2011-12 2015-16 2002-03 2012-13 2016-17 NO. OF COMPANIES RAISING FUNDS UNDER EIS 1993-94 2003-04 1996-97 2006-07 1999-00 2009-10 2013-14 1994-95 2004-05 1997-98 2007-08 2000-01 2010-11 2014-15 1995-96 2005-06 1998-99 2008-09 2001-02 2011-12 2015-16 2002-03 2012-13 2016-17 Number of companies 1,000 2,000 3,000 4,500 0 SOURCE: EIS1 FORMS