A group of 87 UK startups and small businesses - in sectors spanning FinTech, hospitality and retail - have written to the Treasury demanding an alternative to the Future Fund, which it says risks excluding early-stage firms as they will be unable to secure matched funding from angel investors.

As previously raised when the fund was launched last month, investors providing matched funding under the Future Fund cannot claim Enterprise Investment Scheme (EIS) relief on their investment.

The letter to chancellor Rishi Sunak argues that this risks excluding earlier stage start-ups and retail, hospitality and leisure businesses from the Future Fund because they will be unable to secure matched funding from angel investors. This problem is exacerbated by the fact that many of these businesses have not qualified for Coronavirus Business Interruption Loan Scheme and Bounce Back Loans due to the State Aid restrictions included in these schemes.

To rectify the issue, the letter calls for the Treasury to introduce a temporary tax relief scheme for angel investors that is similar in nature to the EIS and open to startups with a permanent establishment in the UK. This scheme should have a higher upfront rate of income tax relief and no time limits on the age of the business so that more established small businesses in the retail, leisure and hospitality businesses can qualify.

Introducing this scheme would not only help save a vast swathe of the startup ecosystem from insolvency but would also see private investors take on the risk of supporting the small business sector, thereby preventing the government from incurring further debt, the letter argued.

Michael Buckworth, managing director of law firm Buckworths, which helped organise the letter, commented: “The huge success of the EIS scheme in funding UK startups demonstrates that tax incentive schemes work.

"Replicating it on a temporary basis with lighter restrictions on qualification and use of funds would encourage the private sector (and not the government) to take risk and would secure the future of our SME sector to the broader benefit of the British economy.”

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