Generous tax breaks for start-up businesses are siphoning investment cash away from firms looking for money to keep them growing , according to a new study.
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Business is booming for start-ups and investors focus on the benefits of the Seed Enterprise Investment Scheme (SEIS) and crowdfunding, says the report from business analysts Beauhurst.
However, firms that have past the start-up phase are experiencing growing pains because investors are shunning them in favour of better deals.
According specialist web site seis.co.uk, the research found more than 600 new; rapidly expanding businesses had access to £1.5 billion in investment last year– which is approximately one third more than the prior year.
Boosting business profiles
The study highlighted two reasons for gold rush in funding for start-ups –
- The increasing influence of crowdfunding platforms like Crowdcube and Indegogo
- The generous tax reliefs created by the government via the SEIS that was launched in April 2012 and has run alongside the boost in funding in the sector
Beauhurst figures crowdfunding and SEIS boosted the profile of start-up firms and attracted eight times more money to the sector than in the previous year.
“Later stage firms who need funds for continued growth are losing market share and one of the reasons is the tax breaks available through SEIS are much better than those offered by the Enterprise Investment Scheme or Venture Capital Trusts,” said Dr Stephen Bence, chairman and co-founder of Beauhurst.
He explains while an investment amounting to £1.5 billion may not be large in terms of already established corporations, in the context of startups it may allow a company to reach success that match the size and strength of companies such as Facebook.
More incentives needed
The website indicates that companies in the middle stage of investment are not as successful as others. More assistance is needed to allow these companies to flourish on to becoming successful businesses. More tax incentives for investors could prove to be the solution to this issue otherwise, mid-stage companies will be stuck and unable to progress.
Accorrding to the website, SEIS gives subscribers reasonable safety when investing in startups by offering generous tax breaks. These incentives can be used throughout the three-year investment period which benefits both investors and businesses.
The tax breaks include a 50% income tax reduction, regardless of tax rate of up to £50,000 depending on investment size and capital gains tax reliefs and exemptions upon disposal of the shares.
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