Seed Enterprise Investment Scheme (SEIS) equity stakeholders risk the tax man tying up their cash if they delay making their investments, warn fund managers.
The warning comes as SEIS investors gather their funds to start looking at their investment options.
However, it is noted on specialist website seis.co.uk, explains that investing now makes more sense.
More than half of investors wait until the end of the tax year in March to put their money into a SEIS.
The problem with this is they have to pay this year’s tax bill and are locked into advance tax payments for next year because of HM Revenue & Customs delays in processing investment certificates.
Without the certificates, investors cannot access the generous SEIS tax breaks.
Investing now, say fund managers like John Williams, managing partner at Kuber Ventures, avoids the delay because the certificates will be back by the end of January, when the first tax payments are due.
Then, rather than paying income and capital gains tax and claiming a refund, the investment can be set off against tax payments due on January 31, 2014.
“Trying to time your investment for the tax year end rush is no more tax efficient than making the investment earlier and can hit cash flow,” Williams told seis.co.uk.
“Delaying an investment means investors will not pick up their tax breaks until later in the year, but putting money into company now allows investors to offset their reliefs against tax that needs paying now.”
Williams and other fund managers want investors to take stakes in SEIS, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) earlier in the year so they can tie any tax relief with any tax payments that fall due later in the year.
In January, taxpayers should pay the balance of tax owed for the previous tax year plus the first payment on account towards the next year’s estimated tax due. The second payment on account is due in July.
“Waiting does not mean the tax reliefs are lost, but investing earlier makes sense for most taxpayers,” Williams said to seis.co.uk.
SEIS gives investors a 50% reduction on income tax paid in the year, worth up to £50,000 on a maximum £100,000 SEIS investment. Investors can also win a 50% capital gains tax exemption on the disposal of any funds that are raised from selling assets that go directly into SEIS.