Changing the narrative Paul Wilson, Chairman of IFA Magazine and EIS Magazine, believes the time is right for a new way of thinking about EIS, BPR and VCT schemes. Or rather, a very old one
There was a time, not so long ago, when the message being broadcast to financial advisers about taxefficient investment vehicles like EIS, VCT and BPR schemes was primarily – well - that they were tax-efficient. And that, in return for providing much-needed risk capital for start-up and fledgling companies which could probably come from no-one else but wealthier investors, these vehicles could offer hardpressed taxpayers a range of tax concessions which could hardly be rivalled anywhere else. You’ll have noticed that a few things have changed over the last few years. The Treasury has been reining in the scope for some forms of EIS investments, while redefining the boundaries for others. HMRC has been making headlines of a less benevolentsounding kind with regard to certain forms of EIS schemes – at one point, more than 800 were being investigated for potential rule breaches. And all the time, the media was being fed lurid stories about what Jimmy Carr and others were being encouraged to do in the name of tax optimisation. From the Budget speeches to the humble income tax forms, the flow of negative news about tax efficient investments has been unstoppable.
A New Initiative EIS Magazine thinks this is all taking an unfortunate direction. More to the point, however, it’s showing up just how very far away we’ve moved from the original reasons for investing in EIS and VCT funds – and for their 1980s predecessors, the Business Expansion Schemes. When you get down to it, today’s alternative investment vehicles
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are still about fostering small and up-coming businesses. And to this end, EIS Magazine is now co-ordinating an industrywide campaign to reboot the popular assumptions about alternative investments. And, in the process, to impress upon our political masters the need to stop giving EIS, VCT and the rest such a hard time.
Why the Old Way Has to Go You can understand why the Jimmy Carr stories hit such a popular vein and why they became such a headache, both for alternative fund advisers and for the advisers who work with them. At a recessionary time when the public’s income was under daily pressure, stories like these about a devious minority were always likely to sell newspapers. But, seen as a wider process, it forms part of a bigger agenda around blurring the traditional boundary markers that have demarcated the
There is a tremendous societal benefit when small companies break through the fledgling barrier and grow.
frontier between tax avoidance (legal) and tax evasion (illegal). The emergence of what the Treasury now calls aggressive tax avoidance is like a dirty bomb which taints everyone who is perceived to be standing anywhere
near it. Every selfassessment income tax form now requires the up-front declaration of any tax avoidance scheme (and even potential avoidance schemes) that will flag up in advance the fact that the client is being competently advised in the spirit of the old Duke of Westminster v Inland Revenue decision from 1936. We’re sure you’ll remember that High Court ruling. It was the one that said that “every man is entitled to arrange his affairs so that the tax attaching under the appropriate act is less than it otherwise would be.” And it’s been a dead duck since 2013, when the General Anti-Abuse Rule (GAAR) was published – pledging, in the Treasury’s words, to target “only avoidance schemes that are clearly abusive. By ‘abusive schemes’, we mean schemes that can be seen from the outset to be simply highly contrived and artificial arrangements designed to enable people to get around the tax law and avoid paying tax.” This is loose and deliberately imprecise talk, and it is in no way
intended to frighten decent, honest investors who intend to abide carefully by the rules. But the trouble with mud is that it sticks in places where it has no business to. We need to reverse this trend – or rather, to refocus our efforts on the wealth-building aspects which were where we originally came in.
We Need Fledgling Businesses to Grow There is a tremendous societal benefit when small companies break through the fledgling barrier and grow. The financial benefits are felt not just by the shareholders, but individual employees and their families, society at large which shares in corporate success through VAT, PAYE, NICs, corporation tax, pension provision, maternity and sickness pay and a host of other monetary contributions March 2016 ¡ www.eismagazine.com
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flowing from that corporate success for perhaps a generation or more. There are as many if not more nonmonetary benefits that can be outlined in support of the new and developing businesses as work brings harmony, aspiration and better life chances across our society. The case for the entire industry was made most eloquently in the foreword to the 2015 HM Treasury Report, Tax-advantaged venture capital schemes: response to the consultation on ensuring continued support for small and growing businesses, and to which many of the industry leaders contributed. “The government’s aim is to make Britain the best place in Europe to do business. The tax-advantaged venture capital schemes continue to be an important part of meeting this aim, providing valuable support to small and growing businesses seeking finance to develop and grow. To date they have supported over 22,000 businesses to gain access to finance, with over £17.5 billion of funding provided.” That is a record to be proud of – and, as an industry, we have played a very large part in delivering this. But taking it to the next level will necessitate a more Accentuate the Positive The way forward is to reposition the industry from top to bottom. To keep pressing the Government on the subject of much-needed tax incentives, but – much more importantly – to focus the clients’ attention (and our own) on optimising the investments themselves. If we can get across the message that alternative investments are first and foremost about getting society, industry and investors working together to meet the common goals of boosting economic growth across the country – and, only secondarily, about tax efficiency, then we’ll be on the road to a better and more sustainable relationship. A Working Group To this end, EIS Magazine has been extending its contacts into the EIS/
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BPR/VCT community with a view to achieving a better balance – and with it, hopefully, a better bulwark against the wholesale hijacking of the industry’s image. We need nothing less than a sector-wide initiative. Part of the Working Group’s remit will be to ensure that advisers have the very best materials that will focus on fund performance, rather than primarily on the tax incentives available. Another part will involve a lobbying thrust aimed at the Government, the media and intermediaries to ensure that a consistent, accurate and positive
We are developing a Working Group on EIS/BPR/VCT and it is designed to bring together likeminded individuals and specialists
message is delivered. This would not be just to potential investors, but also to the wider public at large. Finally, the Working Group aims to refine the industry’s marketing expertise so as to give advisers better ways of explaining EIS/ VCT to clients. By explaining the central functions of fund managers, their operational techniques and the best ways of choosing one, the whole marketing exercise can be enhanced and improved. This will mark something of a shift from the current tendency to focus first on the tax breaks available which is
normally the only training that intermediaries receive, inevitably distorting their perception of what drives the sector.
Changing the narrative from taking to contributing The EIS/VCT/BPR industry has been framed, both in the media and politically, as existing primarily to facilitate tax avoidance for the wealthy. Which is a scandal. In fact, as we know, the industry acts as a conduit through which investment from private individuals (who are encouraged and supplemented by the state to invest) can be directed to the very best opportunities available. This industry is reducing risk for investors, through rigorous selection of investment opportunities, careful due diligence and ongoing support for investment targets in the form of management input and further investment sourcing. This makes everything possible.