Start-ups in the UK seeking funding are set to be helped by making permanent a funding scheme which incentives investors to back risky businesses.
Two years after establishing the Seed Enterprise Investment Scheme (SEIS), the government has announced that its success has led to a decision to make it permanent.
The initiative means that SEIS investors can commit up to £150,000 in a single company, and in return receive tax relief of 50 per cent on their income tax for the year the investment is made.
Furthermore, the government will now be exploring options for the tax reliefs to apply where individuals make investments in the form of convertible loans. To target high-risk investment in a better way, the coalition will also change the eligibility criteria of venture capital schemes to avoid subsidising low-risk activities that already benefit from certain government programmes.
George Whitehead, manager of the Venture Partners at Octopus, says, ‘SEIS is a great tool for entrepreneurs looking to raise the first £150,000 of investments.
‘Raising the first round of funding is tough for start-ups – and the risks associated with investing in brand new businesses are high. It’s encouraging to note that the government has been looking beyond the seed stage at the entire funding ladder and are continuing to support the cornerstones of small business funding, EIS and VCT. In order to grow global businesses, entrepreneurs need plenty of funding and support, and today’s Budget announcement recognises this.’
Chancellor George Osborne’s last Budget speech saw him announce that investors would be able to extinguish capital gains tax made up to 6 April 2013 by investing in an SEIS during the next tax year. Old rules had meant that tax exemption was only available on gains realised in 2012-13 then invested in the same year.
More on the Seed Enterprise Investment Scheme:
- EIS and SEIS failing on eligibility and awareness fronts
- New investment practices
- First SEIS fund launched
Ole Bettum, co-founder of Bestport Ventures, comments, ‘The chancellor confirmed that he is interested in exploring options for tax reliefs to apply to convertible loans in EIS [Enterprise Investment Scheme] investments. Assuming this is adopted following consultations over the summer, this will greatly assist venture capital managers in structuring deals to mitigate some of the downside risk.
‘The SEIS structure was made permanent in the Budget but that remains a very small segment of the overall EIS market. Overall, the Budget is good news from EIS investors’ point of view as it confirms that the coalition government remains a strong supporter of the current, attractive regime.’
Mark Payton, MD of Mercia Fund Management, adds, ‘“SMEs can breathe a sigh of relief as Osborne backed up his support for them by continuing the coalitions’ tax incentives for private investors seeking investment opportunities via EIS and, most importantly, SEIS.
‘In addition, the government has made it clear that such incentives are not provided for low risk investments which already receive government subsidy.’
Despite the decision to make SEIS permanent, Luke Lang, co-founder of Crowdcube, would like to see the scheme extended.
Lang says, ‘While it’s great news that the chancellor announced new tax relief for social enterprises and is making SEIS tax relief permanent, we’d like to see the £150,000 level (for 50 per cent tax relief) raised to £250,000.
‘Tax incentives such as SEIS and EIS have been hugely important in driving investment in small businesses and we want these to benefit the businesses seeking larger sums of investment for growth.’