The 2012 budget confirmed the introduction of a Seed Enterprise Investment Scheme (SEIS) from 6 April 2012. This is a new government incentive to support UK start-up and young companies by offering a range of tax reliefs to individual investors who purchase new shares in SEIS companies. SEIS is a similar investment incentive to EIS but is specifically targeted at new companies. It is anticipated that companies may want to go on to use EIS after an initial investment under SEIS.
The new Seed EIS offers 50% income tax relief on investments in shares in small early stage companies carrying on, or preparing to carry on, a business in a qualifying trade.
Would my company qualify?
The business must
- be 2 years old or less
- have 25 or fewer employees
- have less than £200,000 of gross assets
- be carrying on a qualifying trade
- not be quoted on a stock market
- not have previously raised money under the Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) schemes
What tax relief is available?
- Income tax relief is available on total investments of up to £150,000 per company. This is a cumulative limit, not an annual limit. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it
- The shares must be subscribed for in cash, fully paid at the time of issue, and held for three years
- For individual investors there is an annual limit on the amount of qualifying investments of £100,000
When is income tax relief not available?
Income tax relief is not available where
- The investor is an employee of the company (unless they are also a director)
- The investor has more than a 30% interest in the company (excluding loan stock)
- The company loses its qualifying status
More good news
In 2012/2013 only there is also an opportunity for capital gains tax savings. There is a capital gains exemption for any capital gain arising in 2012/2013 when the gain is invested in a SEIS in the same year.
- All disposals with gains in 2012/2013 will qualify
- If all or part of the gain is invested in SEIS shares in 2012/2013 this amount will be exempt for capital gains tax
- Like normal EIS, if income tax is not due, the CGT exemption will not be available
- For complete exemption of a gain, you must hold the SEIS qualifying investment throughout the three year qualifying period for full income tax relief. The investor and the company must make sure that they continue to meet the conditions that apply during this period
This means that in 2012/2013 it is possible for an additional rate taxpayer to obtain total tax relief of up to 78%.
For a small company, with a bright idea but insufficient capital, SEIS may attract outside investors. If you are interested in finding out more about the possibilities of SEIS, either for your own business or as a potential investor, contact Peter Howard-Jones Limited now.