Entrepreneurs are queuing up to make funding applications under the Seed Enterprise Investment Scheme (SEIS), according to new research.
Start-up firms seeking SEIS cash from equity investors has surged by almost three-quarters in just 12 months, says a study by fund manager Radius Equity.
HM Revenue & Customs (HMRC) told the firm that 2,582 start-up businesses applied for SEIS status in the 2013-14 tax year, compared with 1,644 in the year before.
However, the figures do not reveal the amount of cash staked against SEIS companies by investors in the year, although investors can put up a maximum of £100,000 in the first year and £150,000 during the three-year life of the SEIS.
If all 2,582 firms took the maximum investment in the first year, SEIS would have raised just over £258 million.
EIS investment rises
The Radius Equity study also looked at firms making applications under the Enterprise Investment Scheme (EIS).
The research showed 2,718 businesses sought HMRC approval for EIS investment in the last tax year, up 16% on the previous year.
Radius Equity director Stephen Norton said: “The generous tax breaks offered by the government under these two investment schemes are attracting attention from huge numbers of entrepreneurs and investors.
“These schemes have definitely helped fill the hole left by the banks more or less leaving the sector.
“SEIS in particular offers a new source of funding that was not previously available to start-up businesses.”
SEIS was introduced by Chancellor George Osborne in his UK Budget 2012.
Tax relief
Investors gain 50% income tax relief and a 50% capital gains tax exemption on assets sold to raise cash directly for a SEIS investment.
At the end of the SEIS, any growth in share value is tax-free, and should the business encounter financial problems and fold, investors also pick up loss relief to offset against other income.
The maximum equity stake is £150,000 over three years, but £100,000 in the first year.
EIS offers similar tax breaks to SEIS – 30% income tax relief on investments up to £1 million, tax free growth on share values and loss relief as well.
Many investment experts are lobbying the Chancellor to increase the SEIS investment thresholds to £250,000 or more when he makes his autumn statement speech later this year.
