Stuttering SEIS Means Start-Up Funding Falters

Lisa Smith, BA (Hons), CeFA

Seed Enterprise Investment Scheme described as ‘ridiculously generous’ to help boost UK start-ups has been hit by a low-take up rate and has prompted a fresh promotional push by the government.

Launched last year in a blaze of publicity by Chancellor George Osborne, the Seed Enterprise Investment Scheme (SEIS) is designed to help start-ups with invaluable investment by offering tax relief to investors.

Investors can claim up to 50% relief on an investment worth up to £100,000 against their tax bill.

They are also able to claim tax breaks of up to 28% on any Capital Gains Tax (CGT) and more relief should the venture fail.

Despite the generous terms, investors have stayed away from SEIS, which has prompted HM Revenue and Customs (HMRC) to begin promoting the SEIS scheme more effectively.

As part of that push, HMRC has alerted investors to the fact that they can use ‘carry back’ and avoid paying CGT on the investment before April next year – that’s 12 months longer than investors originally thought they had.

Ridiculously generous tax breaks

Government enterprise adviser Lord Young, has described SEIS as being ‘ridiculously generous’ since it creates one of the most generous tax-incentive investment schemes in the world.

That’s because the amount of cash being put at risk by an investor is effectively underwritten by the government but still potential business backers are wary.

One reason being put forward is that start-ups struggling to find investors are failing to understand the criteria around the SEIS scheme, which has been described as being ‘less than straight forward’.

Another theory for the slow take-up is that potential investors do not want to be seen to be mitigating their tax bill in the current climate.

HM Revenue and Customs (HMRC) is actively promoting SEIS as an investment vehicle to ‘stimulate equity investment’ because they struggle to attract seed investments and the scheme recognises the risks involved which is why it so generous to attract investors.

SEIS rules confusion

However, HMRC is also increasingly pursuing individuals and companies which it believes might be avoiding tax and many potential investors are put off by coming into HMRC’s radar by using such an effective tax relief scheme.

Many firms do not want to be associated with ‘dodging taxes’ even if it is helping a new business get off the ground.

There are also issues with the amount of legislation around the SEIS scheme with the eligibility criteria being singled out for criticism.

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