Since its introduction on the 6th April 2012, the Seed Enterprise Investment Scheme (SEIS) has resulted in over £82 million worth of investment in over 1,000 new businesses in the UK (according to official 2013 figures released by the government).
But despite various high profile SEIS investments gaining attention and exposure in the press, there are still many start-ups out there who are unaware that they could gain vital funding by using SEIS.
The SEIS encourages investors to look at funding the nation’s younger companies by offering some of the most generous tax breaks available anywhere in Europe in exchange for investment. The idea of the scheme from the government‘s perspective is to help drive the economic recovery post-2008 and promote new businesses. The start-up sector is a vital cog in the economic structure of the UK, and it requires a great deal of attention to ensure that it doesn’t fall by the wayside.
To qualify for the scheme, a start-up must be younger than two years old and have less than 25 employees. There must also be a permanent UK residence and the company must not have total assets in excess of £200,000. If these criteria are met, the company can attract investment via a platform or fund, or can source investment on an individual basis.
If a company meets the criteria, they can apply for ‘Advanced Assurance’ which is a seal of approval form HMRC to state that they qualify for the scheme. Having this assurance makes the proposition of investing far more attractive to an investor looking to benefit from the tax incentives.
When it comes to investing, risk is one of the key components that can often discourage potential investors from parting with capital. The SEIS reduces the risked significantly by offering 50% income tax relief and CGT exemption. This, when offset against any potential for loss, minimizes the risk which would usually be a sticking point for many. If the company blossoms and becomes a success, the investor stands to benefit hugely form both the return on investment and the tax incentives offered.
To claim the tax breaks, the investor must have paid for the shares in full, in cash, and must have had them in place for three years. Having a holding stake of larger than 30% is not allowed, and being classed as an employee of the company is also forbidden.
The tax laws surrounding the SEIS are relatively complex, however it is something which is currently being addressed in order to make it simplified.
If you are an entrepreneur looking to benefit from the SEIS, or if you are an investor hoping to benefit from the tax breaks offered by the scheme, professional advice should be sought before deciding to go for a SEIS.
A useful guide to the scheme is available at www.SEIS.co.uk