The Institute of Chartered Accountants of Scotland (ICAS) believes that the Enterprise Investment Scheme (EIS) could provide the incentive to encourage investment in uncertain times. The Scheme is designed to help smaller, higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. However, not enough businesses are benefiting because the scheme is complex and some companies do not know whether they meet the conditions to qualify for the Scheme.

The availability of loan capital has diminished in the current lending climate, removing an important source of funding from those businesses hardest hit. The availability of EIS incentives could provide an important source of finance to businesses affected by the credit crunch, encouraging equity investment. In particular, the exemption available on any subsequent gain on the sale of shares is beneficial, making the initial risk a more worthwhile prospect.

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Responding to an HM Treasury consultation on EIS which closes on 20 June 2008, ICAS has called for a lighter regulatory touch and a set of unambiguous rules so that the costs of setting up the Scheme are not prohibitive to the investee company.

Derek Allen, Director of Taxation at ICAS commented: "Investor awareness of the complex EIS rules is a barrier to investment. For example, the company may do something over which the investor has no control which results in the loss of its qualifying status, and the investor’s relief is consequently lost.

"ICAS has long campaigned for simplification of the tax system and this area is no exception. Simplifying the EIS rules would facilitate further investment."

(GK/JM)