Why You Should Consider The Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which offers tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate.
By its very nature, the act of developing a new product and taking it to market is highly risky. Even after thorough research and expertise design input, it is impossible to predict the commercial success of any new product. A highly innovative product that has the potential to disrupt international markets may fail to be adopted for numerous reasons. Establishing a company and funding the development of a new product using the SEIS mechanism is a fantastic way to ensure that sufficient funds are available to see the project through to completion. It is also a sensible way to manage personal financial exposure for the inventor, entrepreneur or business owner who wishes to create a new product.
There are significant tax reliefs available to those who invest in a company that meets the SEIS requirements. Relief is available at 50% of the cost of the shares, on a maximum annual investment of £100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. However, the shares must be held for a minimum for 3 years.
For example: Jenny invests £20,000 in SEIS shares in the 2012 to 2013 tax year in SEIS. The relief available is £10,000 (£20,000 at 50%). The amount owed to HMRC for the year (before relief) is £15,000 which she can reduce to £5,000 as a result of her investment.
There is a ‘carry-back’ facility which allows all or part of the cost of shares acquired in one tax year to be treated as though the shares had been acquired in the preceding tax year. The SEIS rate for that earlier year is then applied to the shares, and relief given for the earlier year. This is subject to the overriding relief limit for each year. Note that there is no SEIS rate earlier than 2012 to 2013, so there is no scope for carrying relief back before that year.
Please note: this is a journalistic article and should be not considered as financial advice; all factual information has been extracted from www.gov.uk