Budget 2013 has brought good news for Seed Enterprise Investment Scheme (SEIS) companies and their financial backers as Chancellor George Osborne announced he is extending capital gains tax reliefs on raising cash for investments.
SEIS was launched a year ago to kick start funding for small businesses with no financial track record that operate in risky sectors.
These firms have always found raising investment difficult – but the problem is even worse as banks withdraw from business lending and other investors look for safer havens for their money.
The tax breaks to encourage SEIS investments are among the best in the world – a 50% reduction on income tax liabilities regardless of the investor’s marginal tax rate on cash inputs of up to £100,000 and up to a 28% exemption on capital gains tax (CGT).
This comes in to play when an investor sells other assets to directly raise the cash to input in to a SEIS company.
Generous tax incentive
The CGT exemption was due to run out on April 5 – but Osborne agreed to extend the break for another financial year in Budget 2013.
“Our seed enterprise investment scheme offers generous incentives to investors in start-ups,” said Osborne in his Budget 2013 speech.
“MPs have asked me to extend the CGT holiday and I will.”
Other Budget 2013 help for start-up businesses includes increasing the rate of above-the-line research and development credit to 10%.
“Along with our new 10% corporation tax rate on profits from patents coming in next month, this will help make us one of the most internationally attractive places to innovate,” said Osborne.
The Chancellor is also trying to ease the ability of businesses to raise finance by encouraging companies to look for funds on equity markets rather than debt financing through bank loans.
Equity finance boost
“Many medium sized firms and start-ups use the Alternative Investment Market to raise funds to help them grow. Many observers of the British tax system complain that it has long biased debt financing over equity investment,” he said.
“So I am abolishing altogether stamp duty on shares traded on growth markets such as AIM. In parts of Europe they’re introducing a financial transaction tax. Here in Britain we’re getting rid of one.
“From April next year, this will directly benefit hundreds of medium-sized UK firms, lowering their cost of capital and supporting jobs and growth across the UK.”
The Chancellor also used his Budget speech to conform the much anticipated alignment of corporation tax rates to income tax rates.
From April 2015, the 2014 rate of 21% will drop to 20% in line with the basic rate of income tax. This is coupled with a merger of the small company and main corporation rates that abolishes marginal relief calculations.
