BUSINESS
INVESTMENT UPDATE
INVESTMENT AND THE NEW SEED ENTERPRISE INVESTMENT SCHEME (SEIS) FOR START-UPS
From 6th April 2012, a new Seed Enterprise Investment Scheme was introduced targeting start-ups looking for investments of up to £150,000. Chartered accountants and business advisors, Wilkins Kennedy, looks at what this means for young businesses and the investor benefits. Individual investors looking to support start-ups and small firms could benefit from a number of tax reliefs introduced in the 2012 budget, geared to support fledgling businesses. Investors and larger companies will already know about the existing EIS (Enterprise Investment Scheme) designed for established businesses, although the qualifying figures changed in the March 2012 budget, moving from a maximum gross asset size of £7 million with 50 employees to £15 million with 250 employees. The new Seed Enterprise Investment Scheme (SEIS) is specifically designed to help early stage companies to raise equity finance by offering a range of tax reliefs to individual investors. Shares issued after 6th April attract tax relief at a higher rate. The scheme is not without the usual rules and regulations – the company has to meet a number of requirements to qualify for the scheme. Some of the requirements apply only at the time the shares are issued; others must be met continuously, either for the whole of the period from date of corporation to the third anniversary of the date of issue of the shares, or in some cases, from date of issue for the shares to the third anniversary of their issue. If the company ceases to meet one or more of those conditions, the investors may have their tax relief withdrawn. Requirements: • The company must be unquoted, with no shares listed on the London Stock Exchange or any other recognised stock exchange (AIM and PLUS markets are not considered to be recognised stock exchanges). • It must have fewer than 25 employees. If the company is the parent company of a group, that figure applies to the whole of the group. • It must have no more than £200,000 in gross assets. If the company is the parent company of a group, that figure applies to the whole of the gross assets of the company and its subsidiaries. Shares in, and loans to, subsidiaries, are ignored for this purpose. • The company must not have had any investment from a Venture Capital Trust (VCT), or issued any shares in respect of which it has submitted an EIS compliance statement. • It may not receive more than £150,000 under the scheme. • Check that you are a qualifying business (exclusions include property investment and financial services firms). Enterprise Investment Scheme (EIS) – Raising finance for small businesses One of the difficulties facing many small businesses in the current economic
market is how to raise finance. One option that may be available to these companies is to seek private investment, but how can this work, and how can a small company ensure that they are attractive to potential investors seeking good returns? Under Enterprise Investments Scheme (EIS) rules, any small trading company meeting certain conditions can offer shares to investors which may qualify for certain tax advantages. This scheme can make investment in a small company attractive to individual investors, who may have previously avoided investing in small companies due to a higher risk factor. The main conditions a company must meet to be a ‘qualifying company’ are as follows: • It must be an unquoted company. • It must be a company carrying on a qualifying trade. • The money must be used in an existing trade, or in preparing to carry on a trade, or in research and development where it is intended to lead to a qualifying trade being carried on. • The money raised must be used within two years of the shares being issued to the investor(s) or within two years of the trade commencing if that is later. Most trades are ‘qualifying’ trades, but there are a few activities that are excluded, such as property development. Eligible investors can benefit from the following headline tax reliefs: • Income tax relief at 30% of the investment (increased from 20% from 6th April 2011). For example, a qualifying investor paying £10,000 for shares would have a reduction in their personal income tax liability of £3,000. • No capital gains tax to pay on any eventual gain made on the disposal of the qualifying shares in the company by the investor. • The ability to defer capital gains tax arising on disposals of unrelated chargeable assets sold within 3 years prior to or 12 months following investment in an Enterprise Investment Scheme. • Generous loss provisions if the investment is ultimately unsuccessful. The rules surrounding Enterprise Investment Schemes are detailed and complex for both firms and investors, and you should always seek advice from a qualified adviser in this area.
For more information or to arrange a meeting to find out more about it, please contact Ian McIntyre on 01233 629255 or ian.mcintyre@wilkinskennedy.com
www.insidekentmagazine.co.uk
19