Funding options for start-up businesses

The Seed Enterprise Investment Scheme (SEIS) can help secure investment for your business. As a start-up business sourcing finance can be tough as traditional finance routes may view your business as risky.

In 2012, the Government set up the SEIS as an initiative for private investors to invest in early stage and high-risk businesses with the benefit of receiving significant tax breaks. Therefore, making the investment a more attractive option.

This would also support and encourage innovation in UK businesses. Investors can benefit from SEIS through the following:

• Income tax relief up to 50%.
• Capital gains tax relief on shares disposed of after three years.
• Loss relief if you lose your investment.
• A qualifying investor can provide up to £100,000 of funding.
• The ability to apply tax relief to a previous tax year.

Through SEIS funding, businesses can receive up to £150,000 (this will count towards the limits of other venture capital schemes if you apply at a later date). The investment amount must be spent within the first three years of the date of issue.

Larger and lower risk businesses can raise funds through the Enterprise Investment Scheme (EIS), investors can invest up to £1m per tax year and businesses can raise up to £5m in a 12-month period. The benefits to investors are:

• The ability to claim up to 30% of the value of your investment in tax relief.
• If the business fails, the investor may claim loss relief. The amount of relief that you are eligible to claim is dependent on the rate of income you pay.

There are also two types of capital gains tax (CGT) relief available on this scheme:

Deferral relief – if an investor sells an asset and uses the gain to invest in a business that qualifies for EIS, the CGT will not need to be paid until the EIS share has been sold.

Disposal relief – if an investor sells their shares after three years, they will be exempt from CGT.

Both the SEIS and EIS are fairly complex funding schemes but can provide much needed investment for smaller and start-up businesses. It is always worth reviewing your funding options, especially at the beginning of a new tax year.

Clear Vision Financial Management are a team of accountants based in Romsey and Poole, if you would like any advice on your accounting needs, please do get in touch. You can call us on 01794 330025 or email us.