The Seed Enterprise Investment Scheme offers entrepreneurs a route to raise cheap money for their businesses, but many seem unaware or unwilling to join the scheme.
Only 2,320 companies raised £189 million from SEIS in 2017-18, which was a 4% decline on the previous year.
Since SEIS started in April 2012, the number of companies raising money has plateaued at around 2,400 a tax year.
The benefit of raising SEIS investment for an entrepreneur is the money is not a debt burden to the business.
The maximum investment is £100,000 – as a bank loan this would come with capital and interest payments to a bank or finance house that could weigh on fragile sales or working capital of a fledgling business.
Bonus for entrepreneurs
As a share capital, the funds come with no such burden and remain on the balance sheet rather than invoking repayments to lenders.
SEIS was designed to help entrepreneurs looking for capital for this reason.
Other benefits include 50% upfront income tax relief for investors, no CGT on the growth in value of shares and loss relief should the business flop in the first three years.
The qualification tests are inviting for businesses which must have fewer than 25 employees, assets of less than £200,000, a trading history of no more than two years and exclusion for a handful of mainly service business sectors.
Linking crowdfunding of the £100,000 of investment with SEIS is particularly attractive for many entrepreneurs.
So why are so few companies taking advantage of SEIS?
One issue is HM Revenue & Customs, which manages the scheme, does not publicise SEIS to entrepreneurs or investors.
Like many things tax, HMRC leaves finding out about venture capital investments to taxpayers and does not promote SEIS, the bigger Enterprise Investment Scheme (EIS), Venture Capital Trusts (VCT) or Social Investment Tax Relief (SITR).
So far, SEIS has seen 12,900 companies raise more than £1 billion of investment, but the amount could have been so much more if the markets were aware of the tax benefits.
SEIS is well worth looking at for high earners who have maxed out their pension contributions as the scheme offers some of the best tax breaks around outside a pension.
Find out more about SEIS
You can download a copy of the SEIS Guide here. The guide is divided into a section aimed at investors, and one targeting entrepreneurs. It is the first port of call for those looking to enter into a scheme which has seen incredible growth in popularity in the last few years.
The guide is downloadable from SEIS.co.uk , and provides an easily digestible source of vital information for anybody who could benefit from the scheme.