£1.9bn tax breaks scheme is facing Budget crackdown
TAX breaks designed to help ambitious start-ups succeed are facing a clampdown after wealthy investors exploited them to cash in on less risky schemes.
The £1.9 billion Enterprise Investment Scheme is attractive to high earners because they can slash their income tax bills if they make big start-up investments. But many have been claiming tax breaks on projects with little chance of losing money.
Chancellor Philip Hammond is set to launch a crackdown in the Budget, in a bid to ensure that anyone claiming the relief is at genuine risk of losing money if an investment fails.
Official figures seen by The Mail on Sunday suggest that almost twothirds of investments in funds under the scheme were siphoned off by projects regarded as low risk. The EIS was launched to help small, high-risk companies, such as biotech or drug research firms raise cash.
Fi gures s uggest more t han £ 450 million of the £ 746 million pumped into EIS funds in 2016-7 was for schemes marketed to investors as ‘capital preservation’ plans, where healthy returns are more than likely. Such schemes either involve investments in projects with lucrative property assets or TV and film investments that have already been given the green light.
The Mail on Sunday revealed earlier this year that TV investors were being marketed schemes under the EIS, where a return was virtually guaranteed once the tax breaks were taken into account. Investors were providing cash to fund TV programmes already commissioned by TV channels. Promoter Great Point Media said at the time that investments were ‘absolutely at risk’ because there could have been a production failure. But Mr Hammond is likely to exclude film and TV investments from EIS in future. Around £280 million of the £450 mil- lion of capital preservation deals relates to TV and film investments. There are also likely to be restrictions on investments in pubs and other property-backed investments.
The crackdown is part of the Government’s Patient Capital Review, a lengthy probe into business finance that may also see an injection of cash for the British Business Bank to fill a gap created by Brexit.