MPs are concerned that Seed Enterprise Investment Scheme (SEIS) tax breaks may disappear in the upcoming Budget 2013.
SEIS kicked off with a bang by offering up to 78% tax relief on investments of £100,000 in start-up businesses, but some of the incentives are due to expire on April , 2013, and a Parliamentary select committee is concerned investors may divert much-needed cash for small businesses elsewhere.
The Science and Technology Select Committee has published a report detailing the concerns and laments that the UK lacks a coherent strategy which helps universities and the science sector turn ideas into commercial success stories.
They say too many British companies are looking overseas for funding help to turn ideas into money-making enterprises.
The committee is now calling on the government to create a financial framework that would encourage UK companies to have confidence in finding potential backers.
Limited funding options
Dermot Campbell, a partner at KuberVentures which runs an Enterprise Investment Scheme (EIS) platform, said many technology companies have limited options for funding.
He warned: “One of the most significant incentives is due to end on April 5, as the absolute saving of capital gains tax (CGT) on seed enterprise investment schemes comes to an end.”
Mr Campbell urged Chancellor George Osborne to use his Budget 2013 to extend the CGT exemption on SEIS to help investors and small businesses benefit from the tax break.
He also said that a lack of commercial funding is hampering the growth of the economy and this is an issue that the government should urgently address.
The select committee says when firms are forced to look abroad for funding, the UK loses revenue and jobs and many companies are sold to foreign buyers before ideas are properly developed.
Unfulfilled potential
The select committee’s report highlights the UK’s excellent record in creating world-leading technology companies but, they say, the lack funding has created a bottleneck which prevents many firms from fulfilling their potential.
The report states: “At seed level, technology companies receive some support for development through generous incentives. However, the reality is that these companies encounter considerable challenges at round two of the funding process.”
The committee says the bottleneck resolves itself and that SEIS and EIS programmes then help fund many firms future development.
Though tech firms are a small proportion of UK companies, they are popular with investors under these investment programmes.
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