Current Position of the Scottish Investment Market

In this new blog post, Neil Norman Entrepreneurial Tax Partner at Chiene + Tait gives an overview of the current position of the Scottish investment market and the impact Covid-19 has had on investments.

Trends and changes

Covid-19 has triggered major changes in the Scottish investment market. We have seen many companies seeking funding, but fewer new investments made. Rather, the observed trend has been for investors to first seek to ensure that their existing portfolio companies continue to be supported. There is also a second trend – many of the investments made into existing investee companies are being tranched. For example, a company seeking £2m follow-on investment, may need to accept that it can receive £750k now and the balance in, perhaps, 6-12 months. This strategy, whilst sometimes frustrating for the recipient, appears sensible as investors seek to mitigate their exposure to the risk of a loss in an uncertain, macro-economic market. Whether the lack of certainty or ‘runway’ will adversely affect the fortunes of the investees remains to be seen, but those companies I have spoken to in this situation seem accepting of the investor’s logic and not overly concerned.


In the early days of lock-down, we noted a significant shift in valuations being offered by some investors. However, anecdotally expressed concerns that this was the start of an era of opportunism appear to have been unfounded. Rather, so long as the investees are able to carry on relatively unabated with their plans to develop their intellectual property, their investors have been supportive with valuations that typically mirror those seen in the pre-Covid world. This is testament to the strength of the Scottish investment market and the integrity of those operating within it.

Support for Entrepreneurs

Support for entrepreneurs in Scotland remains amongst the best in the world; we have the most mature and one the most advanced early-stage investment markets. Since Archangels commenced investing in the early 1990s, there are now over 20 active angel syndicates and many funds operating here. Then, add in the support offered by LINC Scotland to the investor groups (including our EIS Helpdesk), the availability of match funding from the Scottish Investment Bank, the Covid-support measures introduced by the Scottish Government which are widely accepted as being better than the UK Government’s offerings, and the plethora of investment opportunities, many of which have come from world-leading research institutions, and it is clear that Scotland remains an extraordinary location for investment activity.

Author – Neil Norman, Entrepreneurial Tax Partner, Chiene + Tait

EIS: The Current Landscape and Future Trends

The Enterprise Investment Scheme (EIS) has seen a lot of changes in recent years with the main focus of concentrating the scheme on high-growth companies, thereby re-positioning the market towards greater risk. The move from capital preservation to more organic high-growth companies has been driven by the new risk to capital condition. This has seen investment lean heavily towards the technology sector, whereas previously more investments were made in the infrastructure sector, which is traditionally more asset-backed, and the media and entertainment industry, using special purpose vehicles.

Although these changes may be realigning EIS with that of its intended purpose (focused on high-growth companies), their overall impact and therefore the number of businesses supported may be difficult to realise with the ever-looming issue of Brexit. Furthermore, it is expected that the changes will result in a drop in the number EIS investments made, however, we will need to wait until Spring 2020 when HMRC publishes its annual statistics for these effects to be quantified.

In summary, the volume of EIS investments completed has been steadily increasing for several years, and the figures published for the 2017/18 tax year show no divergence from this trend. As mentioned previously, these results are expected to drop significantly in response to the introduction of the risk to capital condition introduced last year.

EIS Investments HMRC 2019
Source: Alternative Investment Report 19/20: Enterprise Investment Scheme – Industry Report (Intelligent Partnership)


Although EIS is a hugely lucrative and popular scheme, there still seems to be an abnormally low level of utilisation in Scotland. Of the 3,920 EIS investments made in 2017/18, only 185 (5%) of them were made in Scottish companies, and a large number of the investments were in London based companies (1,860).[1]

The knowledge-intensive companies rules have seen several changes since their introduction in the 2015 Finance Act, the most recent of which sees the annual investment limits doubled to £2m and

10m for individuals and companies, respectively. HMRC have also been granted powers to approve knowledge-intensive funds, which should increase their use in the industry.[1]

HMRC’s Advance Assurance application process has also seen significant changes recently with the rejection of speculative applications and the introduction of a compulsory checklist. The change in HMRC’s position towards speculative applications (i.e. now refusing to consider them) has seen a reduction in the number of applications submitted, this is thought to have been done to ease the load on HMRC. However, it has caused some frustration in the industry, as investment opportunities were previously assessed by investors after Advance Assurance had been acquired. The figures also show that the percentage of submitted applications being accepted has dropped significantly, this may be in response to the new risk to capital condition that gives HMRC inspectors added discretion when it comes to accepting or rejecting applications.

ASA requests
Source: Alternative Investment Report 19/20: Enterprise Investment Scheme – Industry Report (Intelligent Partnership)

It seems as though the Government is attempting to direct EIS investment back towards high-growth, entrepreneurial companies and that can only be good for the economy. Although the investors in the market may be frustrated by these changes, it is unlikely that the level of investment made using EIS will change substantially due to how rewarding the scheme is in terms of tax breaks. With Brexit looming on the horizon, EIS may be subject to further changes as the EU state aid rules will no longer be enforced.[1] This may free the UK Governments hand to determine how they wish the tax relief to be structured.

As the EIS legislation becomes increasingly complex, and HMRC flex their muscles regarding the risk to capital condition, the need for experienced EIS advisors continues to grow. If you have a query about EIS investment or generally investing in a company, please contact Ryan today at

Quick investment required? Could ASA save the day?

If you are looking to plug a funding gap quickly and easily, whilst ensuring EIS tax relief for your investors, there are few options available. A funding round from new or existing investors can be a lengthy process, requiring due diligence, valuation agreement and long-form legal documents.

A convertible loan note sometimes causes problems under the ‘Receipt of Value’ rules or the ‘Independent Investor’ requirement, and often remains on the company’s balance sheet until the company stops looking for EIS investors and all EIS investments have been held for three years. Potentially a long wait!

Advance Subscription Agreements (ASA) are a useful option. A valuation doesn’t need to be immediately agreed, the legal process is quite straightforward, and the company doesn’t need to worry about finding the funds to repay a loan or interest. Best of all, if implemented correctly, investors can get EIS relief on the investment! It seems like a win-win situation.

Advance assurance is strongly recommended by HMRC to companies looking for EIS investment. However, with no official parameters or guidance there has always been a large element of the unknown.

Until now…

HMRC released guidance on 30 December 2019 which sets out the key points to consider when using or drafting an ASA for EIS investors. A couple of important points are as follows:

  • Simplicity will help the qualifying status!
  • It cannot permit refunds under any circumstances.
  • No variation, cancellation or assignment.
  • No interest payable.
  • A longstop date (the date the shares must be issued if no funding round occurs) no more than 6 months later.
  • Advance assurance must be sought BEFORE an ASA is entered into if it is being sought.

An interesting point to note is that the EIS compliance forms will need to be completed once the shares have been issued. So, it must be shown that all the EIS requirements are met at the date of that issue. One thing to highlight is the ‘Use of funds’ requirement; can the company show that the funds from the ASA are being used to develop and grow the trade, at the date of conversion into shares? The company needs to show why it needs those funds at the date of conversion, and the purpose cannot simply be to meet existing day-to-day expenditure.

The HMRC guidance is helpful but by no means gives companies, advisors or investors a guarantee that an investment under an ASA will qualify for relief. Advance assurance is always the feather in any company’s cap when seeking any investment under EIS, and when using an ASA it is even more important. HMRC’s new guidance can be found here.


If you have a query about EIS or using an Advance Subscription Agreement, contact Kirsty Paton today at

Understanding Investment

In this blog, Kirsty in the Chiene + Tait Entrepreneurial Tax Team outlines the different types of investment available to entrepreneurs and how to access funds.

What is investment?

Investment is a two-way funding street – an investor will fund a business idea in order to help an entrepreneur on their journey in the hope that there is a return on their investment. An entrepreneur looks for investment to receive a cash injection to take their idea to the next level. Different companies have different requirements in order to develop an idea or scale up, and investors have varying appetites and interests.

It’s important to remember that giving or receiving an investment is a financial transaction and therefore there are rules, but also helpful reliefs (see our useful links below) available to make the most of funds.

The main types of investment we come across at Chiene + Tait are:

  • Equity – an investor provides funding for the company in exchange for equity in that company.
  • Debt – an investor loans money to a company, generating a return through interest on the loan alongside repayment.
  • Convertible debt – is simply a loan that can be turned into equity (share ownership), generally upon the occurrence of future financing.

Entrepreneurs can be easily bamboozled by different investment types and what they need to do after receiving funds – keep in mind that very little is given philanthropically i.e. for free, and you will need to give something in return.


Availability of funding?

More often than not the entrepreneurs I speak to see cash flow as one of the biggest barriers to growth, accessing funds to grow is an essential component of any start up or scale up. Apart from individual investors, there are other sources of investment funding available to start ups:

  • Incubators – this is a ready to go to space that has support and infrastructure available for start ups. Entrepreneurs should keep in mind that the incubator is itself an entrepreneurial venture; investors often pool funds to secure a large building and outfit the space with its own support team and everything needed for dozens of start-ups to engage in business. The incubator generates revenue by charging monthly rental-access fees to the tenant companies.
  • Angel Syndicates – this is where a number of investors pool their investment resources in order to have a greater pot available to invest in entrepreneurs. In order to access funds from syndicates, entrepreneurs usually have to attend syndicate board meetings and pitch for funds.
  • Scottish Investment Bank (SIB) – this bank was specifically created to increase the supply of finance to SMEs in Scotland. Grants and funding are available via SIB and Scottish Enterprise to support growth. The new Scottish National Investment Bank (SNIB), which will be completely distinct from SIB, was announced by the Scottish Government in September 2017 and will also provide new sources of funding for SMEs. The SNIB is currently the subject of a public consultation with further detail expected in the coming months.
  • Venture Capitalist (VC) – is a corporate investor who provides funds to, usually, later stage startups or scale ups.



The process for getting funding varies, depending on the source of funding. A typical investment deal will go something like this:

  • Writing a business plan to use as a tool to outline your idea and demonstrate to investors how their funds will be used,
  • Pitching your company or business idea in order to get investors on board,
  • An initial offer is made using a term sheet, setting out expectations and valuation,
  • An investment agreement is drafted by the lawyers which may be subject to some negotiation,
  • The agreement reaches completion and the funds are transferred.


Top tips

So, you’ve got a plan of action and a set objective to achieve growth. But what tips can I give you from my experience to help you on this journey?

  • Practice your pitch – don’t go into a meeting with an investor without having a thorough understanding of your plan, the investment you are looking for and your exit strategy.
  • Assess the correct funding for your company – understand what investment type suits your current and future needs.
  • Sector specific investment – assess whether there is an investor or syndicate that specialise in your field, rather than approach a bank or general funder who may not be able to provide additional mentoring and key expertise.
  • Plan your timings – don’t think that everyone will want to throw money at your brilliant idea. At any one time there are hundreds of other brilliant ideas that investors are looking at. It takes a lot of time to fundraise.
  • Understand your costs – be realistic with your costs, an investor will want to see that you’ve thought through your plan carefully and fully. Any investment will be in you, in addition to your business idea and an investor will want to be confident that you can deliver the goods within your projected budget.


If you have any queries about understanding investment, feel free to drop me a line at or call 0131 558 5800. Alternatively, I’ll be at the Investing Women Ambition & Growth Conference 2018 running 1-2-1s and masterclasses. See you there!

Dave Philp in our Entrepreneurial Tax Team has also written a blog for startups called Are you missing out on Research & Development Tax Relief. To read this blog, watch his accompanying webinar or download his related infographic click here.

Iain Masterton in Business Insider Magazine: Crowdfunding is a grey area for HMRC

‘Iain Masterton, director of VAT and indirect tax at Chiene + Tait , says that businesses looking to raise finance via the crowdfunding route should carefully consider the VAT implications before going ahead.

He says that if the crowdfunding pitch includes the funders getting a product in exchange for their funds then the business might be liable to VAT – something that should be taken into account when working out the funding requirement.

Masterton says: “There is a problem because there is no definitive guidance on offer from HMRC, something that people could refer to without going to an advisor so it does make it a bit of a grey area.”

He says that if the product provided in exchange for the funding is something that would have been liable for VAT on the sale of the good then VAT will be levied. This will not be the case on VAT exempt products such as food and children’s clothes.

“It’s a fact for a lot of these businesses that they haven’t taken VAT into account and they are suddenly faced with a bill from HMRC for 20 per cent of the value of the VAT-able goods sold.”

He says: “We worked for a company that was crowdfunding a board game they were developing. They were trying to put together a Dungeons and Dragons type board game and they had commitments from the UK, EU and non-EU funders.

“They had commitments of £90,000 from the UK which meant that they immediately went over the £85,000 turnover threshold and they were liable to VAT. HMRC were very good about it and didn’t give them a penalty payment but it meant that they were due to pay 20 per cent and that was something they hadn’t taken into account in the financial calculations.”

Masterton says that if the crowdfunding is set up as a loan or if the investor received equity in return for their investment then VAT would not apply; only if goods are exchanged for the investment that are liable to VAT.

Despite recent uncertainties, including Brexit and the triggering of Article 50, alternative lending has seen a sustained period of growth in recent years. For example, peer-topeer lending by volume reached over £100m by the start of 2017 according to alternative funding news website altfi.’

To read the full article in Business Insider, visit their website here.