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A Guide to the Seed Enterprise Investment Scheme and SMEs

Gary Green
Gary Green
February 27, 2015

The Seed Enterprise Investment Scheme offers a superb opportunity for small and medium sized businesses to attract investment.

Start-ups and small businesses have found it ever harder to get funding for their ventures since the recession. Traditional means of investment are just not abundant enough. Banks have become increasingly frugal with overdrafts, loans and the money needed to make money.

However, we’ve seen increased talk of how the private sector is the saviour of the rest of the economy. Fortunately, there are a number of ways that start-ups and small businesses can boost their coffers to get their hands on funds, and to make the necessary investments they need.

Money

Starting your own business can be quite intimidating, and there's little tougher task than getting funding. Most modern businesses will consider options such as approaching venture capitalists, or crowdfunding in the form of sites such as Kickstarter or crowdfunded equity.

However, there are other options out there too. One that’s seen notable success, and is also backed by the UK government, is Seed EIS.

How to Start my Business with no Money – SEIS

Similar to the Enterprise investment scheme, SEIS or the Seed Enterprise Investment Scheme is focused on encouraging people and businesses to make investments in small, new companies.

Of course, the small business gets its money, but what about the investor?

With SEIS, investors get their incentive in the form of relief on their income tax. They are also exempt from capital gains tax on profits they make from the venture. For investors, SEIS allows them the chance to receive a deduction in income tax of 50% of a maximum £100,000 investment per annum. If investors don’t invest the full £100,000, the excess can be brought back and used in the previous year.

According to Seed EIS experts Key Business Consultants, it’s a great form of tax relief and one that allows you to turn your money into productive capital. Obviously, like all investments you stand also to make a loss. However, if this is the case with SEIS this loss can be offset against income tax.

For investors the chance to receive tax relief on investment and also the capital gains benefits can be very beneficial. The government explains the income tax and the capital gains tax benefits and also shows working examples of how SEIS works in terms of taxation on its website – see here for details.

Eligible Businesses

There are a number of criteria for eligible businesses to meet. These include:

  • UK Resident
  • Unquoted Company
  • Fewer than 25 employees
  • Gross Assets of under £200,000
  • New business that’s under two years
  • Recipient company can only obtain £150,000 of SEIS funding
  • Must have not raised money under the EIS or the venture capital trust VCT schemes

Eligible Investors

There are also a number of criteria for eligible investors. These include:

  • Shareholder can’t be an employee of the business unless they are a director
  • Cannot have more than a 30% interest if they are a director
  • Shareholder is not authorised to receive value from the company during the 3 year qualifying period
  • This excludes ordinary commercial payments such as dividends or expenses being reimbursed.

The SEIS has been in operation for almost three years now, having been included in the Finance Bill of 2012. As we previously mentioned, SEIS is a fantastic scheme for new businesses in the UK and also for investors.

We are specialists in this field. So, if you’re a small business or investor and this seems interesting, get in touch.

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