Entrepreneurs are missing out on crucial business advice to help their companies grow because government limits on tax-incentivised investments are too low, claim accountants.
In response to a recent consultation reviewing tax breaks for Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT), accountants Baker Tilly highlighted entrepreneurs often could not afford to take best advice to grow their businesses.
This has led many entrepreneurs to grapple with complicated investment qualification rules that exposes their lack of business expertise and leaves investors at risk of losing their tax breaks, says the firm.
Although EIS and VCTs are long-running schemes, SEIS was introduced by Chancellor George Osborne in April 2012 as a measure to attract more investment in start-up businesses.
He set the investment limit at £150,000 over the three year life of the SEIS.
Tax reliefs
Baker Tilly says this cap in particular is too low to give entrepreneurs the cash to access good business advice and should be raised.
They do not suggest a figure, but other investment experts have told the government raising the limit to at least £250,000 would be reasonable.
Investors gain substantial tax reliefs from putting money into all three investment schemes, but SEIS is the most generous.
Inward investment attracts income tax and capital gains tax reliefs, while successful equity stakes in companies grow tax-free. If the SEIS company fails in the first three years, the investment can be offset with loss relief against other income.
Baker Tilly told specialist investment web site SEIS.co.uk: ““We have submitted to HMRC that missing out on professional advice can lead to a company making inaccurate or incomplete tax relief claims.
Lifting limits
“Lifting the investment limit would give firms extra funds to seek advice and it’s cost-effective for the HMRC compliance team.
“Acting for smaller companies looking for listing on London’s Alternative Investment Market, we can see they must have SEIS, EIS or VCT investment to grow as they are unattractive businesses for traditional bank and institutional sources of funding.”
HMRC asked for responses from investors, advisers and entrepreneurs about several issues involving SEIS, EIS and VCTS, including:
- Changing the age limit on companies applying to join the schemes
- Changing investment limits
- Introducing convertible loans to each scheme
- Removing low-risk investment opportunities from the schemes
