Generous tax breaks under the Seed Enterprise Investment Scheme (SEIS) are going begging because many entrepreneurs are unaware their business qualify for the cash boost.
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SEIS is a government-backed scheme that lets investors take an equity stake in start-up businesses and offers tax benefits in return.
More than a thousand new firms have signed up for SEIS by pre-qualifying their investment with HM Revenue & Customs, but the government feels many entrepreneurs are missing out.
One fear is many start-ups are put off by the red-tape in joining SEIS, while others simply do not realise their businesses could benefit from SEIS, says the investment web site SEIS.co.uk.
“Many entrepreneurs feel SEIS is aimed at technology and pharmaceutical start-ups – but dozens of other industries can benefit as well,” according to the site.
“The first step towards SEIS funding is identifying whether a business can apply for the scheme.
“Unhelpfully, HMRC has a backwards policy of deciding how a business qualifies for SEIS by listing those that do not rather than those that do.”
Find out if your businesses qualifies for SEIS on the HMRC web site
The rules are strict – mainly because the government fears rogue investors could set up start-up companies just to gain the massive tax breaks.
But genuine companies needing cash can pick up an equity investment of up to £100,000 in a tax year and a maximum of an £50,000 top-up in the following two years.
For the investors, the tax breaks include 50% income tax reduction offering a saving of up to £50,000 and a capital gains tax bonus at the start and end of the SEIS.
Investors can also set off their losses against other income should the business fail.
Tax breaks for investors
SEIS is a standalone scheme, but companies emerging out of the start-up stage to seek more capital to fuel growth can migrate to the Enterprise Investment Scheme (EIS).
EIS has been around longer than SEIS, which was introduced by Chancellor George Osborne in April 2012, but runs on similar lines.
Businesses need to qualify to gain entrance to the funding scheme, but EIS allows larger investments.
“Both tax breaks are aimed at reducing risk for investors while making taking equity in new businesses less of a risk,” says the site.
For about SEIS and EIS rules for entrepreneurs and investors, visit the HMRC web site.
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