More than 1,700 British start-up companies have applied for Seed Enterprise Investment Scheme (SEIS) status in the last tax year.
Attractive tax breaks have tempted private investors to offer financial backing to small fresh start businesses starved of capital by the banks.
Figures from HM Revenue and Customs (HMRC) reveal that pre-approval applications for private investment programs SEIS and the Enterprise Investment Scheme (EIS) leapt by 90% in the tax year ending April 5, 2013.
Just over 4,000 companies asked HMRC for pre-approved status for SEIS or EIS.
HMRC pre-approves companies for investors by checking that they meet the qualification rules for tax relief.
Investment tax breaks
Companies cannot hold SEIS and EIS status at the same time, but a SEIS company can move up to EIS status in the future.
EIS pre-approvals were up 9% in the period, from 2,147 to 2,346.
The big improvement was SEIS registered 1, 729 pre-approval applications in the first year, as the scheme did not start until April 6, 2012.
The figures were publicised by financial firm Rockpool Investments.
Chairman Nicola Horlick explained that measures in Budget 2012 that cleared the way for SEIS and tweaked the rules for EIS made a big difference for investors.
“Companies have had a massive financial boost by private investors stepping into cover the capital companies need to grow that was pulled by the banks,” reported investment news website SEIS.co.uk.
“At the same time investors have picked up some terrific tax breaks.
Risk to reward ratio
“SEIS and EIS are both popular with investors. The soaring numbers of companies now taking part shows what an important financial incentive they both area for businesses and investors. The government has given small and medium sized businesses a funding tonic just when it looked as if they had nowhere to go for much need investment.”
SEIS, EIS and VCTs provide different tax breaks and funding opportunities for businesses and investors.
SEIS limits investment tot £100,000 in a tax year and a maximum of £150,000, but investors can pick up 50% income tax relief on their investment plus capital gains tax reliefs if assets are sold to raise cash for a SEIS investment.
“SEIS has proved attractive for many investors who want to fund start-up businesses with larger risk to reward ratios, while the other programs offer a little lower risk by investing in more established businesses,” said Horlick on SEIS.co.uk.
She expects that as SEIS and EIS tax breaks give better returns for investors, the number of applications will keep rising, while VCT investment is likely to decline.
