Background
The UK House of Commons Treasury Committee, has announced the release of a report on venture capital as well as recommendations to address issues with venture capital tax relief. Such reliefs include; the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs).
What Needs to be Addressed?
Issues which are reported as needing to be addressed include a lack of diversity in venture capital, and regional variations in the amount of venture capital investment. The majority of investments have been undertaken in London, Oxford, and Cambridge, the so-called 'Golden Triangle'.
What are the Available Types of UK Venture Capital Relief?
Tax relief is available in the UK in the form of targeted reductions in tax liability.
Three forms of tax relief are available; the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs). This sector also receives support via British Business Bank (BBB) funding schemes.
The reliefs are regarded as making a positive contribution to the venture capital market and investment in small, high-potential businesses in the UK. UK venture capital tax reliefs are considered to be globally competitive and are a key attraction for investors.
What are the Concerns?
The EIS and VCTs have statutory 'sunset' clauses that mean that they come to an end in April 2025. The Government has signalled an intention to extend the schemes but has not said when or for how long. This uncertainty could be a risk to investment.
However, the necessary renewal of the EIS and VCT schemes presents an opportunity for them to be improved, to address current shortcomings. These chiefly comprise; diversity, regional inequality and scale-up capital.
Diversity
According to the report, diversity in the sector is unsatisfactory, both in terms of the characteristics of business founders that receive venture capital funding and the individuals who make venture capital funding decisions.
Further, the report highlights that women and individuals from ethnic minorities are highly underrepresented in both groups.
This is a limitation in this sector.
How Could Improvements be Made?
A number of suggestions have been made regarding improvements to counteract the current deficiencies regarding diversity.
These include:
- Venture capital firms be required to comply with the industry standard 'Investing in Women Code'.
- The Government and BBB to consult on the creation of venture capital funds targeted towards women and ethnic minority founders, in the same way as the BBB's regional fund programmes.
- The provision of statistics relating to diversity in staffing and funding decisions, to be a condition of receiving support in the form of the EIS and VCT tax reliefs.
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