The considerable tax relief of the SEIS make angel investing in young companies a no-brainer.
Policy adviser Rohan Silva describes SEIS as “a brilliant demonstration of the government’s commitment to enterprise” and that “this is the world’s most generous government for tax breaks.”
For once, the hyperbole is justifiable.
The SEIS has been in operation since July 2012, so formal statistics won’t be available for a couple of years. To date, some 200 companies have had “statutory approval” ie HMRC has okayed investors to go ahead and claim the tax relief on their new, qualifying investments.
Now that may not sound much but compare it to the first year of the EIS in 1994. In its first full year, 77 companies got investment and tax approval.
“I hear of some reports of SEIS being the best kept government secret,” said HMRC’s Kathryn Robinson, speaking at the UKBAA Winter Investment Forum. “All I can say is that I wish they would come and man my phone.”
“SEIS does something really important,” says Doug Richard, the investor and entrepreneur who has been heroically pounding across Britain to drum up awareness of SEIS among entrepreneurs and investors. “It is democratic. Whether you invest £1,000 or £150,000, you have an opportunity to put a great deal of money to work. You can put a little bit of money to work in your friend’s son’s business; you can put a good deal of money to work. But everyone can put something to work.”
For angel investors it is “a beautiful scheme,” says angel investor Dale Murray (and who has been Richard’s ally in the promotional campaign). “Not only does it mean that more companies can be funded but it allows you to leverage your portfolio.”
It’s hard to find detractors. Some seasoned investors do grumble that the SEIS is so constrained that many companies don’t qualify. “It’s certainly an attractive scheme,” says one veteran angel investor, “but it’s been narrowed down so far that it cuts out lots of opportunities. It’s so limited. It’s just for companies at the bedroom stage.”
And it is possible that company founders will adjust their business plans just to make them SEIS-friendly – only raising the qualifying £150,000 even though the original plan was to raise twice that amount. The tax incentive tail really ought not to wag the entrepreneurial dog.
But these really are quibbles. The SEIS should be seen as one of the bravest and most innovative tax measures taken by any government since the financial crisis to encourage entrepreneurial growth. And it has been taken in the UK.
Equally adventurous and innovative has been the Angel CoFund.
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