Author: Oliver Kennedy Edited by: Yasmin Asghari
Starting a business can be overwhelming, especially when it comes to managing finances. Luckily, there are government-backed initiatives that offer tax relief benefits to start-ups and small businesses. Two such initiatives are the SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme), which provide significant tax advantages for both investors and businesses. In this blog post, we'll explore the SEIS/EIS tax relief schemes and how businesses can benefit from them.
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#1: SEIS and EIS: What are they?
#2: Benefits of SEIS/EIS for businesses
#3: Eligibility for SEIS/EIS
#4: How to apply for SEIS/EIS
#5: Drawbacks of the scheme
SEIS and EIS: What are they?
SEIS and EIS are schemes introduced by the UK government to encourage investment in start-ups and small businesses. These schemes offer tax relief benefits to investors who invest money in eligible businesses. SEIS was introduced in 2012, and EIS has been around since 1994. Both schemes have similar features, but the main difference is the maximum investment allowed.
With SEIS, investors can invest up to £100,000 per tax year and claim up to 50% tax relief on their investment. EIS allows investors to invest up to £1 million per tax year and claim up to 30% tax relief.
Benefits of SEIS/EIS for businesses
SEIS/EIS not only benefits investors but also provides significant tax relief advantages for businesses. Eligible businesses can raise up to £5 million in investment and may be exempt from paying capital gains tax and inheritance tax. These schemes also allow businesses to raise funds from knowledgeable and committed investors who can provide valuable support and guidance.
Eligibility for SEIS/EIS
To be eligible for SEIS/EIS, a business must have a permanent establishment in the UK and should not be listed on a recognized stock exchange. The business should have fewer than 25 employees and must have been trading for less than two years. Additionally, the business should not have received more than £200,000 in state aid.
How to apply for SEIS/EIS
To apply for SEIS/EIS, a business must first obtain advance assurance from HM Revenue and Customs (HMRC). This involves providing information about the business and the proposed investment to HMRC. Once approved, the business can raise funds from investors and issue SEIS/EIS certificates.
Drawbacks of the SEIS/EIS scheme
While the SEIS/EIS scheme offers many benefits to investors and companies seeking funding, it's not without its drawbacks. One potential disadvantage is that the generous tax reliefs offered also mean that investing in SEIS-eligible companies carries inherent risks. Investors may not see a return on their investment and could potentially lose some or all of their invested money. Moreover, the scheme can be complex to navigate, making it challenging for start-ups to fully take advantage of the tax incentives. Despite these drawbacks, the SEIS scheme remains popular among companies and investors alike. With the right advice and guidance, it can be an effective way for fledgling businesses to secure financing.
SEIS/EIS schemes offer significant tax relief benefits for investors and businesses alike. For businesses, these schemes provide an opportunity to raise funds and gain support and guidance from experienced investors. However, businesses must meet the eligibility criteria and obtain advance assurance from HMRC to benefit from the scheme. Overall, SEIS/EIS can be a useful tool for start-ups and small businesses looking to secure investment.