The number of new company incorporations has hit a new high – and much of the boom is attributed to the Seed Enterprise Investment Scheme (SEIS).
Companies House listed more than 525,000 new companies in the year to March, the highest number since records started in 1997.
A spokesman explained the reason for the increase is difficult to pinpoint but cited a new enthusiasm in entrepreneurs setting up businesses helped by SEIS tax breaks incentives and raising cash through crowdfunding as two of the drivers.
The Scottish Edge Fund, which offers government money to fledgling businesses, is also adding to the increasing number of companies.
Companies House cites the increase as a national phenomenon and not limited to just a few hotspots.
Not enough millionaires
But one entrepreneur expert bemoans the fact that Britain is producing too few multimillionaire business people.
Chief executive of Entrepreneurial Spark Jim Duffy pointed out that Hong Kong generates three super rich entrepreneurs per million of the population compared to only one in Britain.
SEIS companies are one of the policy successes of the coalition government and credited as the brainchild of Chancellor George Brown.
He announced the supercharged tax incentives in Budget 2012, and since then, the scheme has mushroomed to help almost 2,000 companies raise equity stakes from private investors in return tax breaks.
SEIS companies can issue £100,000 of shares in a tax year to an investor.
The benefit to the company is the directors take on no debt to service with interest payments but have instant access to working capital.
SEIS tax breaks
For the investor, the Chancellor reduces the risk of investing in a new start business by offering a 50% income tax reduction on the investment regardless of the level of tax paid by the investor.
Investors selling other assets to raise money for a stake in the company also pick up a 50% capital gains tax exemption.
After the three-year SEIS has ended, investors can sell their shares without paying capital gains tax. If the company fails, they can set off their investment as loss relief against other income.
The combined effect of these tax breaks is investors risk very little of their own cash but stand to gain generous returns.
Crowdfunding can also be tied up in a SEIS investment.
Crowdfunding does not come with any tax breaks, but an equity investment in a company through SEIS or an ISA tax wrapper can reduce the risks involved for the investor.
