The Seed Enterprise Investment Scheme is feted as a hugely generous tax break for investors – but the trouble is not many seem to know a lot about benefits.
Four out of 10 investors and entrepreneurs had no idea what SEIS was about, according to a new survey.
One in four had also never heard of the SEIS big brother, the Enterprise Investment Scheme (EIS).
The findings will be viewed as a setback by the government, which is keen to promote investment in small businesses and start-ups, particularly after they had urged HM Revenue and Customs to publicise the schemes as an alternative to bank funding.
EIS helps smaller companies which carry a higher-risk for investors to raise finance by offering a range of tax reliefs.
Entrepreneurs unaware of funds
However, 35% of entrepreneurs say they are not aware of any EIS tax relief benefit for investors.
In addition, half of those surveyed said they were unaware of tax relief benefits available under SEIS and nearly 90% have not used SEIS to raise cash for either their business or as an investor.
Perhaps it’s of no surprise to find that 60% of entrepreneurs said they did not know the difference between SEIS and EIS.
The same entrepreneurs said more should be done to promote the schemes and pointed to the fact that neither their financial advisors nor banks had mentioned their availability to them.
Those entrepreneurs that had heard of the schemes believed they were only available to passive investors and not to owner-managers – who can apply if they are a director and they meet other criteria.
Call to enhance SEIS
The survey was conducted by the entrepreneurs’ member organisation E2Exchange which is now calling for a range of measures to boost the take-up of EIS and SEIS.
They include doubling the £150,000 maximum investment amount allowable under SEIS, saying this is too small for entrepreneurs looking for backing, and broadening eligibility criteria to include more types of business.
E2Exchange also wants to see preferential rights under EIS and SEIS improved and for tax relief to be allowed on equity as an incentive for investors.
Adrian Walton, a partner at accountants Smith and Williamson, said the lack of awareness by entrepreneurs of EIS and SEIS was a concern but not unsurprising since SEIS only began in April 2012.
“For those who do use the schemes one recurring criticism is that the rules are too restrictive for the types of qualifying trading activities and for the nature securities which can be issued to investors,” he said.
