Business Owners

It’s never been easy for business owners to find funding. Banks often don’t want to lend, especially these days. Investors are hard to come by; most people either don’t like risk or they don’t have the spare money. Did you know that a new government backed initiative has been put into place to change all that?

In 2012, the government introduced a new program to help with funding from investors for young businesses. Investors are attracted to it as it offers them a way to take an investment, without shouldering all the risk. Businesses have got something more than optimism to offer them.

If you’re a new business who has been offering one of the SEIS qualifying trades for less than two years, and you have fewer than 25 employees and gross assets worth less than £200,000 then you could be eligible for it.

You may have heard of the Enterprise Investment Scheme. SEIS is very similar and it was modeled on EIS – however it isn’t precisely the same.

Tax Breaks

The investor can receive income tax relief for the investment. It could be up to 50% of the amount, no matter what tax rate the investor is on. Also, the investor won’t have to pay capital gains tax on any assets that are sold during the tax year 2012/2013 just as long as they reinvest in an eligible SEIS start-up in the same year.

Capital gains tax can also be avoided by the investor, if the company is sold for a profit after 3 years or more. This is just like the Enterprise Investment Scheme.

If the company goes bust, then it’s possible that the investor can claim loss relief at their income tax rate.

Example

Here’s an example so that you can see what the figures look like.

Supposing that the investor puts £100,000 into your business, actually, that is the maximum that they are permitted to invest through SEIS per tax year. In exchange for this, the investor will enjoy a £50,000 reduction in their income tax bill. They can also be exempt from capital gains tax by reinvesting their gain back into an SEIS approved business.  This will save them paying out a CGT bill that would normally be £28,000. If the investment is a complete failure – and for some reason your business goes bust. Then they can offset the other 50% of the investment against their income tax liability. Potentially saving the 45% tax payer £22,500.

This would give total tax relief of £100,500 on an investment of £100,000. In short, if the investment goes bad they are potentially protected to 100.5% of their investment.

If you’re company does particularly well and you sell it after 3 years or more to give back the £100,000 plus another £100,000 in growth then your investor will receive a gross return of £200,000. Normally they would be expected to pay 28% CGT – that would equal £28,000 and they’d walk away with £172,000. However through SEIS they would have already enjoyed the tax relieve on the £50,000 (50% of the original investment of £100,000) add in the saving of the £28,000 and in effect, they only had to put down £22,000 to make their £200,000. Of course, they will be required to reinvest the gain into another SEIS qualifying company before the end of the 2012/2013 tax period.

In this example, the investor would have made a profit off 809% versus the profit (without SEIS) of 72%. Very appealing – don’t you think!?!

If you are a small business looking for funding, then SEIS could be what opens investors’ eyes to your business. They’ve got everything to gain, and nothing to lose.