If you’re a small company owner looking for a cash injection or you’re an investor willing to boost a start-up company, then SEIS (the Seed Enterprise Investment Scheme) could be your match made in heaven.
SEIS bringing small companies and investors together
In our last blog ‘Top tax tips for the new tax year’, we highlighted two very attractive government-backed schemes for anyone looking for investment in their small
company or to investors interested in injecting cash into new companies starting out.
Here we’ll take a look in more detail at SEIS (the Seed Enterprise Investment Scheme) and the tax benefits available for potential investors.
Attractive tax breaks for investors with SEIS
Introduced by the Chancellor George Osborne in 2012, the scheme aims to boost investment in small early-stage
companies by offering very generous tax benefits to investors. In return for investing in these types of companies at the very critical start-up stage, individuals can benefit from income and capital gains tax relief.
In fact, if you invest in a SEIS qualifying company, you will get up to 50% income tax savings on the shares purchases, so effectively buying shares at half price!
How SEIS works
Investors can receive initial income tax relief of 50% on investments up to £100,000 per tax year in qualifying shares. For example, if you invest £10,000, you could get £5,000 back on income tax.
If the company is successful, any profit on shares after three years will be exempt from Capital Gains Tax (CGT).
Existing capital gains can be reinvested in SEIS companies to obtain reinvestment relief at 50%. In other words, you are allowed to treat 50% of the gains as exempt from CGT.
If the company fails, you may be able to offset the loss against income.
Company must qualify for SEIS
As an investor, if you’re interested in benefiting from SEIS, then you must first check that any company you want to buy shares in, has qualified for the scheme. This is very important as you will not be able to claim the tax relief if the
company does not qualify.
For companies to be eligible for SEIS, they can apply to HMRC before any shares are issued, for ‘advanced assurance’. This means HMRC will advise on whether or not the company and proposed share issue qualify.
Key qualifying criteria include:
– The company must be unquoted
– It must be less than two years old
– An individual’s stake in the company can be no more than 30%
– The company can only receive £150,000 of investment through this scheme
– An investor cannot be an employee of the company (a director is not classed as an employee).
More detailed information is available on HMRC’s website.
For more established companies, the government also offers the Enterprise Investment Scheme (EIS) which offers tax reliefs to investors looking to potentially invest more than is allowed through SEIS (up to £1 million). There are
different criteria for this scheme, so if you’d like to know more, please take a look at HMRC’s overview.
If you’re an investor looking for potential SEIS opportunities or a small company looking for investment,
get in touch with us, as small business accountants we can guide you through the process.