Funding options for smaller businesses

Published by restartitservices on

If you are a smaller private company or a start up, then securing funding to grow your business can be tough. There are some options available such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). In order to encourage investment, HMRC launched both of these schemes to provide tax breaks, therefore making this more attractive for potential investors.

Higher risk businesses often struggle to attract investment or more traditional finance such as banks and they may still be too small for venture capitalist firms. SEIS and EIS can overcome these hurdles and help your business to raise funding by offering tax relief to any potential investor.

How does EIS work?

Any individual investors who buy new shares in your company will receive tax relief, thereby encouraging investors to help fund the growth of your business. You can raise up to £5m per year (up to a maximum of £12m in a company’s lifetime).

In order for your investors to claim EIS reliefs in relation to their shares then you must follow the rules set out for at least three years after the investment has been made. These rules include:

  • You must receive equity investment for ordinary shares in the business.
  • The company must be unquoted at the time of the share issue.
  • You cannot have gross assets exceeding £15m immediately before any share issue or £16m immediately after.
  • The business must employ less than 250 employees.

The benefits of EIS

You can issue shares for a cash investment of up to £5m per year. HMRC insists that all funds are used on qualifying activities to help grow your business within two years of the share issues. These activities can include research and development.

For the EIS investor, they will benefit from income tax relief or loss relief.

Income Tax relief

Investors may recover up to 30% of the cost of the shares, up to a maximum of £1m per year. This relief is deducted from the investor’s tax liability.

Loss Relief

If the shares result in a loss, the investor can use the loss amount (less any income tax relief received) to be set off against any income in the same year.

EIS is a pretty complicated method of raising finance but for many risky businesses it is a great option of raising funds. You will need an experience and knowledgeable EIS Accountant to ensure the procedure is carried out correctly. At Clear Vision Financial Management, we can provide advice every step of the way to ensure your needs are fully understood.

What about SEIS?

The SEIS is a junior version of the EIS, tax reliefs are still provided to investors, the key details of the scheme are:

  • Up to £100,000 can be invested in a qualifying year.
  • Investors will receive income tax relief of up to 50% of the sum invested.
  • The maximum amount a business can attract in investment is £150,000.
  • The business must have nest assets less than £200,000 before any SEIS investment
  • The investor must not be an employee in the business the investment is being made, however they can be a Director.
  • They must also ensure they do not have a substantial interest in the business, such as holding 30% or more of ordinary shares, issued shares, voting rights or assets in a winding up.

Many smaller businesses and start up firms assume that trying to secure funding will be difficult however, there are options available. The team at Clear Vision Financial Management, an accountancy firm based in Romsey and Poole, can help you to achieve success with securing funding your business by helping you to provide all the necessary evidence needed.

If you need any help or support with any of the above, please get in touch with the Clear Vision Financial Management team, call us on 01794 330025 or email us.

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