Britain’s generous business investment schemes designed to encourage entrepreneur start-ups so not offer growing firms enough cash.
Despite branded the most generous tax breaks in the world for starting small businesses, the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have come in for criticism from some entrepreneurs.
Alastair Mitchell, of collaboration company Huddle, complains that once a company outgrows the investment schemes, raising cash for further growth becomes a real problem.
The government established SEIS and EIS to aid technology start-ups, along with other funding initiatives, mentoring and grants, but falls short on funding, he says.
“Mentoring and networking is great but the focus has to be more on investment,” he said.
Funding gap for growing companies
“SEIS operates at a very low level with investors putting between £25,000 and £50,000 into a start-up, so a lot of start-ups end up with a lot of investors collaborating to come up with less than £500,000.
“The real issue is that once a company outgrows this level of funding, there’s really nowhere to go for £25 million or £50 million like there is in America and that’s what holds a lot of British companies back.”
Mitchell argues that lack of funding is an obstacle that stops British tech companies from challenging those in the US.
“Some companies could grow larger more quickly if the right funding was available here,” he said.
SEIS offers investors 50% income tax relief on start-up investments of up to £100,000 in a tax year.
SEIS and EIS tax reliefs
Investors also gain capital gains tax reliefs and loss relief if the investment fails.
EIS offers similar tax breaks to SEIS, but at 30% rather than 50% and on investments up to £1 million.
For example, for a maximum EIS investment of £1 million, a taxpayer can claim £300,000 income tax relief, providing the EIS company shares are held for three years.
For SEIS, the maximum income tax relief is £50,000, again providing the SEIS company shares are held for three years.
Income tax relief is available regardless of the rate the taxpayer pays income tax.
Read more about SEIS and EIS on the HM Revenue & Customs (HMRC) web site
