A small business funding alternative
There are plethora of funding options available to small business in the U.K. Generally, small business owners have been preferring the route of bank loans, personal savings, investors and borrowing from family and friends.
As opposed, technology has brought forward new options these days—termed as crowd funding.
However, one option that’s usually missed or overlooked through unawareness is the Seed Investment Scheme, or SEIS. The scheme, in addition to EIS, offers one of the best alternative mechanism of funding for the small businesses in U.K.
As one of the best small business accountants in London, our team focuses in working with clients to prosper their business, and part of that involves assisting them to obtain the funding they need to develop.
What is SEIS?
Introduced by the government in April 2012. It was launched with the idea to encourage investors for funding the startups by offering them tax breaks in exchange for supporting projects which was otherwise being perceived as too risky.
The scheme generates a big avenue for entrepreneurs and small business owners as they can take advantage of the tax breaks related to the scheme for attracting the investment they need or want.
Investors can obtain initial income tax relief of 50% on investments up to £100,000 per tax year in the shares qualified issued on or after April 6th, 2012.
How does SEIS work?
SEIS provides investors incentives and perks in exchange for investing in small businesses and startups.
Investors are provided income tax relief in percentage of the cost of the shares they purchase through SEIS and should the loss incurred on the sale of their scheme shares, they have the avenue to claim loss relief, which not only curtail their tax bill but also highlights the minimized risk involved in SEIS.
SEIS is regulated towards initial-stage, new investment in companies with few staff, turnover and assets, thus making the scheme vital to supporting the generation and business growth in the UK.
Am I entitled for SEIS?
At the time of shares issued, the company must not be listed on a recognized stock exchange and there should not be any plan in effect for it to become listed.
In addition, across the three year SEIS period, it must not be a subsidiary of or regulated by another company. It must either exist to conduct a qualifying trade or else be the parent company of a trading group.
Moreover, there should not be any plan for the company to become a subsidiary of or regulated by another company.
The qualifying business activity for which the shares may be issued by raising money should be carried out by a trade on a commercial basis and with the objective of generating profit.
However, it is viable for qualifying activities to be conducted anywhere in the world, the shares issued by the company need to have a taxable presence in the U.K.
For SEIS objective, the gross value assets of the company and any subsidiaries must not go beyond £200,000 immediately before the shares issued.
Based on certain exceptions, the maximum SEIS fundraising per Company is confined to an all-time maximum of £150,000 and the maximum number of full-time employees at the investment time is confined to fewer than 25.
It is not viable for a company to be entitled for SEIS relief if it has formerly issued shares on which EIS Relief has been claimed or has obtained an investment form or issued shares, a venture capital trust. If shares are issued by the company on which SEIS Relief gets claimed, it is possible to issue consequent shares on which EIS Relief may be claimed.