Entrepreneurs seem to be shunning raising startup capital from the Seed Enterprise Investment Scheme (SEIS).
The latest figures from Companies House show more than 580,000 startup businesses incorporated in 2014.
But figures from HM Revenue & Customs (HMRC) show that only 1,100 startup companies signed up with SEIS in the 2013 tax year – the latest period for which figures are available.
Although these companies raised £87 million of equity investment, the government is trying to encourage more entrepreneurs to take advantage of the scheme.
SEIS offers investors in startup companies a string of lucrative tax breaks, according to Stuart Smith, writing for specialist investment web site SEIS.co.uk.
SEIS tax breaks
- A 50% reduction on tax paid
- A 50% capital gains tax deferral on assets sold to raise cash for a SEIS investment
- CGT_ free growth on shares in a SEIS company
- Valuable loss relief against other income should the company fail within the first three years
Companies House statistics for last year show that although the number of company failures is dropping – down 6% from 253,000 to 238,000 – a significant number of companies cease trading each year.
“SEIS definitely offers investors and entrepreneurs significant advantages over companies outside the scheme,” said Stuart Smith.
“It’s difficult to say why more entrepreneurs don’t look for help from SEIS, but the first three year terms are about to end and we will have a chance to see just how SEIS has been working.”
The Companies House figures also show the hot spots for entrepreneurs in England and Wales.
Most startups are clustered around London (180,000), Birmingham (18,000) and Manchester (13,000).
Startup hot spots
However, other regions with a high than average number of new businesses include Leeds and Sheffield (14,780 startups); Bristol and Cardiff (14,457) and reading, Portsmouth, Brighton and Guildford (27,257).
The statistics are plotted on a map by entrepreneur web site Startup Britain.
“Strides forward in technology are making startups easier, quicker and cheaper than ever,” Luke Johnson, chairman of the Centre for Entrepreneurs, which prepared the figures, told SEIS.co.uk.
Nevertheless, out of the 180,000 businesses starting in London, only 440 applied for SEIS funding raising £36 million in the 2013 tax year, according to the latest figures from HMRC.
“SEIS has raised more than £85 million in much needed seed capital for entrepreneurs during the past three years, but more companies could enhance their odds off survival by joining the scheme,” an HMRC spokesman told the SEIS web site.