How business start-ups could benefit from the new SEIS tax incentive

Thinking of starting a business? A new tax incentive confirmed in the recent budget could make it easier, explains BARRY TURNBULL

Posted by Elderjuice on March 29, 2012. Filed under Money,News. Posted with the tags:business, taxation
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Following the recent budget, the headlines focused on the so-called ‘Granny Tax’, the tax avoidance crackdown and the cutting of the top rate from 50p to 45p. But the package also included a new scheme that could help  kick-start  thousands of new businesses. It’s called the Seed Enterprise Investment Scheme.

So what’s it all about?
The budget announcement confirmed a proposal in the chancellor’s autumn statement that anyone investing in a new or start-up business would qualify for tax relief at 50 per cent in 2012-13. Further, anyone using a capital gain to buy shares in the business would be exempt from capital gains tax, which could mean a  28 per cent tax saving for those paying the top rate.

What does it mean?
Potential investors  will now be able to use tax breaks to invest £60,000 in a company and end up paying just £13,000. Carl Bayley, of advisors Tax Cafe provides a hypothetical example to explain  how it would work.

“An investor has a total taxable income of £100,000 for 2012-13, giving an income tax bill of £29,884. If £59,768 is put into an SEIS qualifying business during 2012-13, the tax bill will be eliminated altogether. Relief is 50 per cent, whatever the personal tax rate.

“In addition to income, the investor also realised capital gains of £70,368 during 2012-13. By investing £59,768 in SEIS shares, this amount of gain is exempt, leaving just £10,600, which is covered by annual exemption.

“This saves a further £16,735 in Capital Gains Tax (28 per cent of £70, 368)  bringing the total tax savings to £46,619. Hence, although the investor has invested almost £60,000, the actual net cost is just £13,149, or 22 per cent of the amount invested.

Who should benefit?
The whole philosophy behind these incentives is a way of providing an avenue for funding for start-up companies and those less than two year old. They must also have no more than 25 employees or £200,000 in assets. Typically, go-ahead young businesses which are struggling to get bank funding can benefit.

What about investors?
It is no secret that investing in young companies is not risk-free so advice must be taken before investigating this sort of investment. However if you have a big tax bill or looming capital gains liabilities, it’s definitely worth checking out.

What about mature investors?
One thing most budding entrepreneurs want is sound advice. Many are looking to hook up with experienced business people, maybe someone who has retired but is still active and interested in helping guide a new business.

Chris Nisbet is about to launch a new business called Seisfund which is expressly aimed at matchmaking entrepreneurs with mentors who have money to invest.

He said: “We have a clear strategy to deliver this scheme that will benefit both start-up companies and potential investors. Of course many new and young businesses are desperate for support due to the reluctance of the banks to help but many I have spoken to are also very enthusiastic about  finding the best mentor.

“So our service is very specific. We gather detailed knowledge of the two parties using a computer program – and if they match and are interested to take it further, they will move on to seeing CVs and business plans.”

Is it for you?
See your accountant or tax adviser. It could be fun but risky – on the other hand rewards could be much greater in terms of personal satisfaction and cash growth.

Start-up Britain
This initiative is  part of the Start-up Britain campaign founded by eight entrepreneurs with the backing of the government.

More information about Seid
www.hmrc.gov.uk/seedeis/index.htm

or email Chris@seisfund.co.uk