BVCA lobbies for new tax-relief fund

The private equity industry’s UK lobbying arm is calling for institutional investors to be included in a new government scheme to provide tax breaks for investors in small UK businesses.

The British Private Equity and Venture Capital Association (BVCA) is pitching a new venture capital fund that could benefit from the government’s new Enterprise Investment Scheme (EIS) proposal.

Last July, the government launched a consultation period for its proposals – which will provide investors in small businesses and start-ups a number of tax incentives.

“There is an opportunity to raise new money from would-be EIS investors using a fund structure and use this to attract further investment from institutional investors providing a significant fillip for high-growth UK SMEs seeking finance,” said the UK trade body in its consultation response.

Offering institutional investors EIS relief could result in bigger pots of capital dedicated to small- and medium-sized businesses

The BVCA is attempting to resuscitate venture capital activity in the country. VC investment totals in UK companies fell to £313 million (€364 million; $485 million) last year, down notably from £454 million in 2009, according to BVCA figures.

The numbers pale in comparison to US figures, said the BVCA, even though the total number of companies which receive VC funding in the two countries is virtually identical. Accounting for GDP and population differences, “almost all of the difference is due to the fact that US VC investments were on average 5.5x higher per company in the US than in the UK.”

Offering institutional investors EIS relief could result in bigger pots of capital dedicated to small- and medium-sized businesses, argued the BVCA. It might also mean more investment in VC-backed companies during their later stages of growth, “creating a new generation of large UK companies.”

The government is expected to produce a response document to the consultation submissions, with legislation expected to be introduced in next year’s Finance Bill.