The system of claiming tax relief on investments should be used by the government to make investment easier and fully realise the potential of existing schemes, a new report by the Institute of Directors (IOD) argues.

The report focuses on the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) and claims that uneven knowledge and uptake are holding the schemes back.

While £1.6 billion was invested in around 24,000 companies through EIS/SEIS in 2013/14, the research finds that 95% of this money came from large investors. Furthermore, 69% of the total money raised went to businesses in London and South East.

A lack of awareness of the schemes seems to be the main reason behind this uneven picture. The IOD surveyed its members and found that less than two fifths, many of whom are directors of companies, knew about EIS.

The report calls for the government to take the following actions in order to raise awareness about investment schemes:

• increase promotion of EIS and SEIS as funding options

• tax relief on investments of less than £2,000 should be handled by a new, online-only system

• a new ‘super-ISA’ should include EIS and SEIS investments

• an ‘aggregator fund’ to help smaller investors should be set up by government and industry bodies.

The report also suggests that a pilot scheme should be launched in the North West in order to test the impact of a higher regional rate of tax relief for SEIS.

Nigel Holland from Holland & Co Chartered Accountants said:

“ At my firm we have noticed that there is an enormous demand by entrepreneurs to start up their own business. More than 2 million new businesses have been set up in the last 4 years and people are very keen to begin operating as an entrepreneur. Britain is at the top of the European league table when it comes to the best place to start a business. 

It is very worrying that new clients who come through our door have never heard to EIS and SEIS and we try to encourage them to use these schemes when ever possible. EIS and SEIS can open up the equity economy and help more people take a stake in the start up revolution. It is disappointing that there is a very large up take by business owners in the South compared to the North West and it is important that this inequality is reversed.

Many new and existing business owners are unaware of various alternative ways of operating a business because they do not have the knowledge and do not possess the skills to exploit lucrative funding options. 

I agree with the report findings and think that a new super ISA which includes EIS and SEIS investments would be an excellent suggestion.”