Although there are never too many reasons to be cheerful in January, George Osborne, in his Autumn Statement a few weeks ago, sent out a few beacons of light for small/medium companies in the prevailing economic gloom.
One of these is the new Seed Enterprise Investment Scheme (SEIS) – offshoot of the existing Enterprise Investment Scheme (EIS) and due to start in April 2012.
The basis of the scheme is that small start-up companies, looking for investors to back their ideas, will be able to structure share issues so that potential investors can obtain 50% up-front tax relief on investments of up to £100,000 in a tax year, plus a capital gains tax “holiday” for other capital gains in the 2012/13 tax year, of up to the amount invested, which could give total tax relief of up to 78%!
So, for example, imagine wealthy businesswoman Mrs B Angel, who is looking for an interesting project. She hears of a company producing eco-friendly designer shoes, and invests £10,000 under SEIS. She obtains income tax relief of £5,000 against her 2012/13 income tax liability, and, because she has substantial gains on her investment portfolio, she also claims a CGT holiday on £10,000, giving extra relief of £2,800. The net cost to her is therefore £2,200.
Additionally, assuming the business is successful, she can sell her shares (after 3 years) with no CGT on the profit.
Too good to be true? Probably not – the government is committed to promoting owner-managed businesses and one of their key strategies is providing tax incentives.
However, the caveat is that there are inevitably detailed restrictions to the relief to ensure SEIS is not used for tax avoidance purposes, and the limit of fund-raising by a single company is a rather disappointing £150,000. Mrs Angel also has to bear in mind that SEIS investments are high risk, and she stands a chance of her shares being worthless in a few years’ time.
Nevertheless, for a small company with a bright idea but insufficient capital, SEIS may be very useful in attracting outside investors.
If you are interested in finding out more about the possibilities with either EIS or SEIS, whether for your own business or as a potential investor, then contact Robert Leggett or Sally Campbell on 01473 220022.
