Looking for funding to start your business? Make sure you consider SEIS.

Finding money to start a business is always challenging. The bank won’t lend you a penny without putting your house at risk and government grants are few and far between. Maxing out credit cards is not a sustainable plan and you don’t want to put your family in a tricky spot by asking them for cash. Your best bet is to convince private investors to back you with their money.

The good news is that the government have a fantastic scheme in place to help you attract just that kind of investment to your start-up business – it is called the Seed Enterprise Investment Scheme (‘SEIS’), and it is such a good initiative it is staggering that so few people are aware of it!

The scheme is designed to help small, early-stage companies to raise equity finance by offering a range of tax reliefs to individual investors who purchase new shares in those companies. If you need to raise no more than £150,000, have traded for less than two years and have fewer than 25 employees it is likely your business will qualify.

So how do you take advantage of the scheme?

Firstly, you need to make sure investors qualify for SEIS relief by submitting your company’s funding and structure plans to HMRC before the shares are issued. The only pre-requisites to this are that you must have registered at Companies House, and have a business bank account. You do not need to have started trading so, as long as you are clear about what your intended qualifying trade is, you can wait to see if you will qualify for SEIS before making definite decisions about your final business plan.

The Small Companies Enterprise Centre (SCEC) can issue a certificate confirming SEIS eligibility to show to potential investors. This process can take eight weeks or more, so make sure you start well in advance.

Benefits for investors

Once you have been SEIS approved you are in a great position to attract investors.
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As an individual investor you get 50pc tax relief against the cost of shares in qualifying businesses in any tax year. This means half the amount invested will be deducted from the investor’s tax bill straight away.

To give a practical example of the power of this relief: Helen invests £10,000 in SEIS shares of her friend Clare’s business. The relief available is £5,000 (£10,000 at 50%). The amount of income tax owed for the year (before relief) is £15,000 which Helen can reduce to £10,000 as a result of her investment.

And if that is not generous enough to elicit an investment there is no capital gains tax to pay if you do eventually sell the shares, whether the gain is in the pennies or millions of pounds, and no inheritance tax liabilities either. Should the business fail, further loss relief is available enabling any investor to recoup up to a potential total of 70% of her investment overall. Great upside, significantly reduced downside – the only stipulation is that the shares must be held a minimum of three years.

The government certainly doesn’t do everything right when it comes to encouraging entrepreneurs and small business – but when it comes to SEIS it has, in our opinion, done a pretty good job.

Our advice: if you are raising seed capital for your start-up business it is well worth ensuring you qualify for SEIS. The benefits it brings to individual investors will make an investment in your business considerably more appealing, giving you the best chance of securing the initial cash you need to get your idea successfully off the ground.

For further detailed information on the Seed Enterprise Investment Scheme, company qualification criteria and full details of reliefs available for investors see the HMRC website here.

Venta Partners can help ensure your company’s funding and structure plans will qualify for SEIS (or EIS) status, and support you through the application and share issuance processes. Contact us today for an introductory discussion.