Alan Lorrimer, founder of live music venues The Piano Works, hospitality sector advisor Payam Keyghobadi, and leisure lawyer Dave Roberts, with the support of the major hospitality organisations, have written an open letter to Chancellor Rishi Sunak asking him to amend the schemes, which offer tax efficient benefits to investors in return for investment into business.
Their proposal, which has been co-signed by Kate Nicholls CEO of UK Hospitality and Michael Kill of the Night Time Industries Association, asks that the Government considers an initiative that will encourage investors to support bars, restaurants, pubs, clubs and music venues by adapting the schemes to offer enhanced incentives that will enable hospitality businesses to approach investors for long term risk capital.
This, they say, would mean hospitality businesses will have the necessary liquidity to survive and re-open, and investors can reap the rewards once the sector is back on its feet.
“The current SEIS/EIS schemes have a proven track record of success in enabling businesses to attract investment. We propose that they be adapted, for a short time frame, to offer enhanced incentives that would enable us to approach investors for long-term risk capital,” says the letter.
“This would ensure that businesses have the necessary liquidity to survive and take advantage of the pent-up demand that the sector will experience when the public come flocking back to the venues they love, which will revive the hospitality sector into the economic engine it was pre-Covid.
“We urge you to amend the EIS scheme, supported by variations to the key eligibility criteria, for 24 months, after which time it would revert to current criteria and reliefs.”
Income tax relief at the point of investment would be increased to 75% in the new proposed scheme, offset by the removal of loss relief. It is also recommended that the age of businesses be reviewed from the current seven-year limit and the time period for raising funds increased from the current seven years to 12 years.
The letter also proposes to increase the size of business from the current gross assets of less than £15m and fewer than ‘250 full time equivalent’ employees to gross assets of less than £100m and fewer than ‘500 full time equivalent’ employees, and for funds to be used for acquisitions and the repayment of CBILs loans if necessary.
Alternative to CBILs
“Effectively, we are proposing an equity alternative to the CBIL scheme,” says Keyghobadi, a partner at financial institution Dow Schofield Watts.
“Debt cannot be the only answer in the current circumstances. The pandemic has meant that many previously robust and well-funded businesses have seen their very viability jeopardised. We are extremely concerned that some excellent operations and operators will be forced out of the sector and may not return.”
According to the trio, the proposed amendments will ensure that many previously healthy businesses will attract investment, helping operators with mounting government loans, supporting industry employment levels and enabling opportunities for acquisitions and growth, enabling the rebuild of the industry as a whole.
While they acknowledge that a vaccine could be imminent, they say that the hospitality industry still desperately needs help to survive the next few months and be in a position to re-open and that, as a result of the tier restrictions and the second lockdown, recovery in the sector has been pushed back by at least a year.
“Since March there has been no light at the end of the Covid tunnel, at last we have something to look forward to,” says Lorrimer.
“We urge the government to allow these changes to the EIS scheme and help rebuild the hospitality industry which has been devastated and has left so many of our young people out of work.”
“Whilst the government’s financial support has been needed and much appreciated, the level of debt is not sustainable. Currently the sector’s balance sheets are over leveraged with CBILS loans enabling operators to survive, but there are many at risk of liquidation. The amendments to this scheme will help the hospitality industry help itself and replace Government debt with equity.
"We know the public will come flocking back to the venues they love so much as soon as they are able, and we want as many businesses as possible to still be around for the next roaring twenties.”