The Enterprise Investment Scheme (EIS) has come under threat amid accusations it offers well-off investors a way of avoiding paying tax.
It offers investors a 30% tax break for backing a fledgling company.
Company founders fear the scheme could be scrapped, The Sunday Times reported, with more details expected in the chancellor’s Autumn Budget.
Proposals to scale back the EIS could include cutting the tax relief available, increasing the time an investment must be held to more than three years and applying more restrictions on the companies that qualify for funding.
It has seen £15.9bn ($21.6bn, €18.1bn) invested in 26,000 small companies since its launch 1994.
Alex Davies, chief executive of Wealth Club, said it was likely the Autumn Budget would include restrictions on investments into EIS companies.
He said: “For those investors considering an asset backed EIS this year, then doing it now would seem prudent.
“Whilst a change is no means certain, there are a lot of suggestions that this opportunity could be closed by the Chancellor come November.”
The scheme has come under examination from the government’s Patient Capital Review launched in November 2016.
The review, which names Neil Woodford and Miton’s Gervais Williams among its industry panel members, is looking at ways to increase funding for small companies.
Companies qualifying for EIS funding can currently receive up to £5m a year from investors but must have been operational for less than 10 years and have assets worth less than £15m.