Strong SEIS funding figures boost Government’s morale after gloomy economic forecasts by the NIESR

Although some organisations like the National Institute of Economic and Social Research (NIESR) is forecasting that the recovery of the UK economy could slow in the third quarter of the year, there has been some good news for the Government in the last couple of weeks.

The UK’s small and medium-sized enterprises raised £163.5 million through the Seed Enterprise Investment Scheme (SEIS) last year

That’s almost double the £85.9 million figure raised in the scheme’s inaugural year (2012-13), and that will come as good news to Chancellor, George Osborne, who has championed the scheme over the last couple of years, and accountants who work closely with small and medium-sized businesses.

What exactly is the Seed Enterprise Allowance Scheme? Well, the SEI scheme encourages investment in new companies and start-ups and offers income tax and capital gains tax relief on investments made by smaller companies. The main aspects of the scheme to date are as follows:

  • SEIS investors can invest £100,000 in a single tax year which can be spread over numerous companies. Individual companies can raise no more than £150,000 through SEIS investment (this is in total – not an annual threshold).
  • SEIS investors qualify for income tax and capital gains tax relief for subscribing in cash for qualifying shares in qualifying UK start-ups. Qualifying shares includes ordinary shares, but also shares that may have certain non-cumulative preferential dividend rights.
  • Investors can receive up to 50 per cent tax relief in the tax year the investment is made.
  • Where income tax relief is available for an investment into SEIS shares, generally any capital gain realised on a disposal of the shares will be exempt from tax.
  • The company must have assets of less than £200,000 in order to be eligible for investment.

Latest figures from HM Revenue and Customs (HMRC) show that the number of businesses raising funds from private investors through the Enterprise Investment Scheme (EIS) has increased year-on-year by 10 per cent – up from 2,465 to 2,710. What about the numbers generated by SEIS? Well, according to a study by Radius Equity 1,995 SMEs secured funding through SEIS last year alone.

Why are schemes like SEIS becoming increasingly attractive?

Well, Gary Robins, director, Radius Equity, believes that SEIS and EIS are becoming increasingly popular amongst private investors because of the dwindling numbers of government-backed investment schemes with attractive tax breaks:

The tax breaks the government has put in place are attracting huge numbers of start-ups and investors which is encouraging growth and proving a boost to the economy,” he said.

These figures highlight the growing investor interest in small business investing. Investors are also benefitting from a wider choice of businesses to invest in, with private investors able to pick and choose from the businesses they think are most likely to deliver them the best returns,” he added.

He believes that EIS is succeeding where so many other lending initiatives have failed, in being able to attract increased funding for the UK’s small business community, and that in an age when small business lending has become increasingly difficult has to be good news as far as accountants are concerned. Mr Robins said:

“[It is] a vital part of the economy that has seen its funding through bank loans fall dramatically and continuously since the credit crunch,” added Robins.

However, the Institute of Directors believes the Government should do more to promote EIS and SEIS further, and make it even easier for people keen to invest in new and growing businesses.

According to Jimmy McLoughlin, deputy director for policy, Institute of Directors:

Rapid growth in the take-up of both EIS and SEIS by companies and investors shows they have the potential to unlock billions of pounds in business investment. More than 100,000 people invested in a company through the schemes last year, but there is no reason that number cannot be ten times as high, particularly as companies raised only £150m through SEIS, which was introduced in 2012.

With Britain leading the European alternative finance market, entrepreneurs in the UK can raise funds in more ways than ever before.
If you would like to minimise your CGT liabilities, or are looking for expert advice on EIS, SEIS or EMI, then contact Steven Glicher accountants on 0161 485 8007.

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