Entrepreneurs queuing up to start new businesses under the Seed Enterprise Investment Scheme (SEIS) are credited with a company incorporation boom over the past 12 months.
The number of companies formed in the year ending March 2014 has hit a new record of more than 525,000 firms – the highest total since Companies House started keeping track of incorporations in 1997.
Companies House cannot pinpoint the major underlying factors driving entrepreneurs to start new businesses but say SEIS and funding opportunities created by crowdfunding are two of the most important factors.
In Scotland, a similar record high in incorporations is reported, with the Scottish Edge Fund aiding entrepreneurs by offering seed cash to start-ups.
Despite the continuing good news sparked by SEIS, investment writer <name> of specialist web site SEIS.co.uk explains some business experts believe Britain is still not doing enough to promote a spirit of entrepreneurship seen in other countries.
Not enough entrepreneurs
He explained Entrepreneurial Spark chief executive Jim Duffy cites Hong Kong produces three super rich entrepreneurs per million of population compared to just one in Britain – and that means less profits and jobs.
Crowdfunding started in the US as an alternative peer-to-peer funding option when bank finance dried up for new businesses, but comes with a lot of risk and no tax breaks unless the project is wrapped in a SEIS.
The industry is largely unregulated and many projects offer poor returns for investment by a pool of interested people – sometimes just a T-shirt or mention on a web site.
SEIS is a government-backed scheme with some of the best tax breaks in the world for UK resident investors.
Introduced in Budget 2012 by Chancellor George Osborne, SEIS entrepreneurs can issue an equity stake of up to £100,000 to investors.
SEIS tax incentives
For the company, this means no capital and interest payments out of working capital, with the money directed instead to expanding the business.
For investors, SEIS offers a 50% income tax reduction on the investment regardless of marginal tax paid by the investor.
Investors selling assets to raise cash for equity in the company also win a 50% capital gains tax exemption.
After the three-year SEIS ends, investors can sell their stake in the company without paying capital gains tax. If the company fails, the investment is set off as loss relief against other income.
