This article was sponsored by the?Department for Business, Innovation & Skills (BIS).The Seed Enterprise Investment Scheme (SEIS) aims to make it attractive for investors to put their money into companies at an early stage. Such companies often find it difficult to raise money in traditional ways such as bank loans, because they don?t have many assets or a track record of success. The company may be seeking to raise only a relatively small amount of money, which would be too low for a venture capital firm to consider. At the moment, the scheme is relatively unknown by many investors and businesses ? but we think this will change in 2013. Here are ten facts that will shed some light on raising investment with the SEIS.? This is not a comprehensive list of the qualifying conditions and you should refer to HMRC?s guidance for full details.
- SEIS allows investors in early stage companies to receive 50 per cent income tax relief on the cost of the shares bought. This means that for every ?1 invested, HM Revenue & Customs will refund 50p to the investor – regardless of their rate of income tax. This is subject to the investor having sufficient income tax liability against which to set the relief.
- An investor can invest up to ?100,000 per annum in small early-stage companies.?
- SEIS is not available if there has been previous Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) investment in the company.
- CGT exemption for gains reinvested is available for assets disposed of in 2012/13 and gains reinvested in SEIS qualifying companies in the same year or in 2013/14 (subject to an election to have the shares treated as though acquired in 2012/13). However, it was announced in the Budget 2013 that a 50 per cent exemption would be introduced for gains made in 2013/4 and reinvested in SEIS shares in 2013/4 or 2014/5 (subject to an election to have the shares treated as though acquired in 2013/14).
- SEIS investors will pay no capital gains tax on ultimate disposal of their shares so long as the company remains a qualifying SEIS company for three years. So even if the business turns into tomorrow?s Mind Candy, the investors will not pay capital gains tax on ultimate exit.
- The company must have commenced trading within the past two years (or be preparing to carry on a new trade) to qualify for SEIS and must be unquoted (AIM and PLUS listings count as unquoted for these purposes). ?New? means no more than two years old and some trades are excluded.
- Companies are limited to raising a maximum of ?150,000 under SEIS (lifetime limit) ? after this, they may be eligible to receive investment through SEIS?s Big Brother ? the Enterprise Investment Scheme (EIS).
- To qualify for SEIS, companies must have fewer than 25 employees and gross assets of ?200,000 or less (before the investment round).
- There are several ways of making use of SEIS:?A) Invest through a fund manager, who will make investments in qualifying companies on your behalf.?B) Become a ?business angel? and buy shares directly in a qualifying early-stage business. This route has appealed to successful entrepreneurs who want to invest in a new business in the industry in which they already have experience.?C) Friends and family of new business owners who want to buy shares in the company can also make use of the tax benefits of doing it by using the SEIS. There are some restrictions when investing in a family members business.?D) The latest way of using the SEIS is via crowdfunding, where new companies use online sites to attract small private investors to group together and buy shares in their venture.
- HMRC can provide advance assurance on whether the company is a qualifying SEIS company.
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