John Phelan, all-island director of HBAN. Image: HBAN
As early-stage businesses feel the impact of the Covid-19 pandemic, HBAN is calling on the Government to introduce measures geared towards stimulating investment in start-ups and SMEs.
The Halo Business Angel Network (HBAN) has submitted a proposal to the Department of Finance, calling for an increase in the Employment and Investment Incentive (EII) tax relief for angel investors.
HBAN, which is an all-island organisation responsible for the promotion of business angel investment, is a joint initiative between Enterprise Ireland, InterTradeIreland and Invest Northern Ireland.
The group said that increased tax relief for investors will reflect the intentions outlined in the Government’s stimulus plans by encouraging investment in growth-oriented Irish SMEs and start-ups that are struggling due to a lack of finance and negative business impacts caused by the Covid-19 pandemic.
John Phelan, all-island director of HBAN, said that the pandemic has resulted in delayed, stalled or totally abandoned investments in early-stage businesses.
“Angel investors are therefore exercising more caution, as their investments are now less likely to attract follow-on funding from venture capital firms – making first round investee companies less likely to succeed,” he added.
Calls for tax relief
Phelan noted that the Programme for Government published in June stated plans to review the current taxation environment for SMEs and entrepreneurs and examine the existing supports for entrepreneurs and investors to stimulate business sustainability and growth in light of Covid-19.
“HBAN encourages the Government to incentivise investors – and therefore economic recovery – by raising EII tax relief from 40pc to 60pc,” Phelan said.
The organisation claimed that improving the EII scheme will play a role in creating more jobs. Unemployment in Ireland currently stands at around 22pc as a result of the pandemic.
HBAN said that raising the annual amount eligible for relief per year from €250,000 to €1m will enable investors to put forward risk capital and provide financial support needed for early-stage businesses to scale and create employment opportunities.
Changes needed
HBAN is also proposing changes to EII processes, arguing that the scheme is not fit for purpose in its current form. The group said that many companies are advised not to use the scheme as a source of finance due to the risk involved as, in most cases, any clawback of the tax relief will have to be paid by the investee company and not the investor who claimed it.
Among the proposed changes are a reduction in what the network describes as an “off-putting and often error-laden administrative process”; greater leniency for companies that make errors in the certification and reporting processes; and the introduction of a more simple version of EII for funding rounds of less than €500,000.
“Even in normal times, there is a market failure in Ireland to ensure that there is enough seed and venture capital funding available to start-ups,” Phelan said.
“Early-stage businesses are therefore hugely reliant on the angel investor community to support them through their infancy. However, investment in early-stage businesses is high risk and potential investors need to be incentivised – especially as their funding is now less likely to attract follow-up investment.”
