AIM offers a significant opportunity to access the tax efficient investment market, while at the same time supporting young and upcoming British businesses.
It provides these small companies with a regulatory environment that can appeal to investors when compared with unlisted companies, providing a certain amount of clarity and transparency about their businesses and the investment opportunities that they offer.
Small and medium-sized enterprises (SMEs) continue to be critical to the UK economy. Figures published by the Department for Business, Energy & Industrial Strategy (BEIS) in October 2018 state there were 5,667,510 private sector businesses at the start of 2018. SMEs (0-249 employees) made up 5,660,000 of those businesses, accounting for 99.9% of the total. The combined annual turnover of SMEs was £2 trillion, 52% of all private sector turnover.
The number of private sector businesses fell by 0.5% compared to 2017 (a drop of 27,000 businesses), which was the first fall since the index was started in 2000. However, to put this into context, there were still 2.2 million more businesses than in 2000.
Government policy is targeted to help small businesses grow and thrive, with a clear recognition of their importance to the UK economy. In October 2018 the Federation of Small Businesses (FSB) praised the Chancellor for delivering a “small business-friendly Budget”. FSB national chairman Mike Cherry said: “Through the Budget, the Chancellor is now using the strength of the Treasury to back small business.”
And in the 2019 Spring Statement, Chancellor Philip Hammond described the government’s approach as an economic plan “to back the enterprise and ambition of British business”.
Given this recognition, the government also provides a number of incentives to encourage investment into these smaller companies to help them scale up and flourish. Acknowledging the riskier nature of such investments, there are tax incentives that work to encourage people to use their money in a tax efficient way, while at the same time backing British business growth.
According to Mark Brownridge, managing director of the Enterprise Investment Scheme Association (EISA), although the government doesn’t compile figures, anecdotal evidence suggests that for every £1 invested via tax efficient schemes, the government gets back £4. EISA data shows £20 billion has been invested into nearly 30,000 small businesses since the EIS was launched in 1994. And figures from the Association of Investment Companies (AIC) show Venture Capital Trusts (VCTs) have raised £8 billion of investments since they were launched in 1995.
While not all investments through BR, the EIS and VCT products will be in AIM-quoted companies, many companies on AIM do qualify for these tax efficient schemes.
This piece has been published as part of the Alternative Investment Market Report 2019. For the full report go to intelligent-partnership.com/reports/aim-industry-report-2019/