Corporate Tax » How investment scheme can support SMEs in the Brexit era

Brexit has dominated the political, economic and news landscapes ever since the 23 June two years ago. There has been constant coverage and speculation on the impact that it could have on almost all aspects of our daily lives, our political leaders and our future.

One particular focus has, understandably, been surrounding what will happen to big corporations not headquartered in the UK that may look elsewhere for expansion or current operations, leading to a loss of jobs and economic output.

There does, however, seem to have been a lack of discussion around what will happen to Small and Medium-sized Enterprises (SMEs) during the process of the UK’s divorce from the EU.

This is going to be absolutely key to the state of the economy in both the near and distant future, as SMEs account for 98% of all private sector business making their ability to grow and thrive more closely linked to the economy as a whole, rather than being dependent on the success of a product or service as individual big corporations can be.

These small businesses contribute £1.9trillion annually to the economy of the UK, so it is easy to see again that a correlation between the sector and the economy will exist, but perhaps more importantly given the size of the contribution there will undoubtedly be causation.

In other words, the health and wealth of SMEs will directly affect the state of the UK economy rather than just fluctuating along with it through the peaks and troughs of the global markets.

Further to all of this, and at a more personal level, SMEs employ around 16 million people around the country, this represents almost half of the employment in the UK.

Not only is it already a significant percentage, but the rate at which it is creating jobs as a sector is also three times higher than the rate for big businesses and corporations.

With all of this in mind the importance of the workers and firms behind the numbers are coming into focus as the real protagonists in the quest for post-Brexit economic security, instead of the impersonal logos of corporations that have dominated the news cycle so far.

Value of the EIS

The Enterprise Investment Scheme (EIS) has helped 27,905 Companies receive investment since its introduction in 1993-94 and has raised over £18 billion for these companies since the introduction.

There is no doubt that it has contributed massively to the strength of the UK SME arena at this moment. It has become a key part of the SME growth landscape in the last 25 years and from the updates and additions that the Government continues to apply, it’s clear that it will continue to be a large part of the Government’s plans moving forward into a transformative period for the UK’s economy.

Alternative routes of securing investment, such as EIS, are becoming hugely important for knowledge-intensive SMEs that often struggle to secure funding without assets to use as collateral for loans.

Company policy can easily get in the way of applications for otherwise perfectly profitable and well run small businesses when applying to banks. Traditional finance from Banks and other lenders are reticent to risk their capital without physical assets to show for the business.

This crucial funding gap is what EIS aims to bridge for small businesses and particularly, in the knowledge-intensive sector. Defined as those small businesses who use a significant percentage of their running costs for research and development or innovation.

The Autumn Budget this year introduced a new EIS fund structure that makes greater levels of investment funds available for these knowledge-intensive enterprises. With an industrial strategy that is continually increasing its focus on research and development, this fund will be key moving forward with the Governments plans to grow the tech industry.

This is also reflected in the increased EIS limit for knowledge-intensive companies of £2m per year, this change has been introduced to provide further encouragement to investors to support IP-rich businesses.

There currently exists a large amount of uncertainty surrounding Brexit and the deal, or the lack of one, but whatever happens it is always going to be key that domestic small businesses are supported in their attempts to grow.

One of the things that will allow SMEs to navigate the challenges of Brexit, will be their adaptability and ability to change to whatever economic environment they find themselves in.

This adaptability stems from the small size of the businesses which otherwise could be seen as a disadvantage. Domestic business could also use this opportunity to pick up any slack left behind by European competitors on the UK market, further strengthening their business, this is course all remains to be seen come March 2019 but if one thing is clear it is that SMEs will have a huge part to play.