If you’re an entrepreneur looking to raise funds for your startup, you may have heard of the Seed Enterprise Investment Scheme, or SEIS. This government-backed initiative was introduced in 2012 as part of the wider Enterprise Investment Scheme (EIS) and is designed to encourage investment in small businesses and startups.
SEIS offers tax relief to investors who invest in qualifying small businesses, making it an attractive option for entrepreneurs who are looking to raise capital. In this blog, we’ll take a closer look at SEIS and how it can benefit both investors and entrepreneurs.
How does SEIS work?
SEIS offers investors up to 50% tax relief on investments made in qualifying small businesses, up to a maximum investment of £100,000 per tax year. This means that if an investor puts £10,000 into a qualifying SEIS business, they can claim back up to £5,000 in tax relief.
In addition to the tax relief, investors also benefit from other incentives, such as capital gains tax relief and loss relief. If an SEIS investment makes a profit, the investor won’t have to pay capital gains tax on the profits. If the investment makes a loss, the investor can claim loss relief, which can help to offset their tax liability.
To be eligible for SEIS, a business must meet certain criteria. The business must have been trading for less than two years, have fewer than 25 employees, and have gross assets of no more than £200,000. Additionally, the business must be engaged in a qualifying trade, such as technology, research and development, or renewable energy.
The benefits of SEIS for entrepreneurs
For entrepreneurs, SEIS offers a number of benefits. Firstly, it provides a way to raise vital seed capital that can help to get your business off the ground. Investors who are attracted to the tax relief and other incentives provided by SEIS may be more willing to take a chance on a new and untested venture, which can be difficult to secure in the early stages of a business.
In addition to providing access to funding, SEIS can also help to boost your credibility as a startup. Having the backing of a government-backed scheme can help to build investor confidence and attract further investment down the line.
SEIS can also be a useful tool for attracting high-net-worth individuals and angel investors. These types of investors may be more likely to invest in a business that qualifies for SEIS, as it reduces their overall risk by providing tax relief and other incentives.
Finally, SEIS can be a way to incentivise key employees and founders. If a business issues SEIS shares to employees or founders, they can also benefit from the tax relief and other incentives provided by the scheme. This can be a useful way to attract and retain talent, particularly in the early stages of a business when cash flow is tight.
The benefits of SEIS for investors
For investors, SEIS can be an attractive option for several reasons. Firstly, the tax relief provided by the scheme can help to reduce the overall risk of investing in a startup or small business. This can make SEIS investments more attractive than traditional investments in the stock market, which may not offer the same level of tax relief.
Additionally, SEIS investments can offer the potential for high returns. While investing in startups and small businesses is inherently risky, the potential for high growth and profitability can make SEIS investments an attractive option for investors who are willing to take on that risk.
Finally, SEIS investments can also provide a way to support UK entrepreneurship and innovation. By investing in small businesses and startups, investors are helping to support the growth of the UK economy and promote innovation in a range of sectors.
SEIS Final Words
SEIS can be a valuable tool for entrepreneurs and investors alike. For entrepreneurs, it provides a way to access vital seed capital and attract key investors and employees. For investors, it offers the potential for high returns and the chance to support UK entrepreneurship and innovation.
However, it’s important to remember that SEIS investments are inherently risky. Investing in startups and small businesses can be a high-risk, high-reward proposition, and investors should carefully consider their options before investing. It’s also important to seek professional advice before making any investment decisions, to ensure that you fully understand the risks and potential benefits of SEIS investments.