Investors in start-ups and fast-growing companies can benefit from some generous tax breaks – but can lose out because the companies fail to keep within HM Revenue and Customs (HMRC) rules.
Tax advisers warn that companies in the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) can take their eye off the ball in the three-year qualifying period.
If they do, investors can have thousands of pounds in tax incentives clawed back.
The accounting firm Hays Macintyre warns that compliance work for both schemes does not stop when a company has raised funding, but should continue throughout the three years.
They also offer investors seven points to watch to protect their cash:
Don’t wait until the last minute for pre-approval
HMRC is taking around two months to work through pre-approval applications, so a company needs to have this in place before approaching investors.
Companies looking to graduate from SEIS to EIS should seek pre-approval for both at the same time.
Pre-approval is no guarantee of tax breaks
HMRC offers no guarantees. Pre-approval is like a test certificate for a car and only applies on the day the tax man reviews your case and is subject to change.
Watch out for law changes
HMRC says one reason for losing SEIS or EIS tax breaks is the qualifying rules change between pre-approval is granted and the tax relief is claimed, meaning a company no longer meets the requirements of the schemes.
Tax is all in the timing
The most common way to breach SEIS and EIS rules is to issue shares before receiving the money from an investor.
Keep on top of the paperwork
Pre-approval only opens the door for tax relief, the company still has to file SEIS1 applications and complete SEIS3 certificates for investors.
Don’t lapse into non-qualification
The company has to work within SEIS or EIS parameters for three years, so keep an eye on all the points above.
Don’t go for SEIS or EIS unless you need to
Some businesses will not ever qualify for SEIS or EIS approval or simply cannot work within the regulatory framework that comes with them. If your business falls within this category, just look for a different way of raising money.
SEIS Guide
The guide is downloadable from SEIS.co.uk , and provides an easily digestible source of vital information for anybody who could benefit from the scheme.
