A no-nonsense SEIS information for start-ups in search of funding 

No severe entrepreneur would dream of launching a services or products with out moving into the heads of their customers.

You’d wish to perceive when, the place and the way typically your supply could be bought and what you’re competing towards for a share of their purse.

It’s the identical with ‘promoting’ your online business to buyers. Greatest to grasp as a lot as you may about their world, their motivations and what’s competing for his or her money.

We’ll choose up on this theme in future columns however for now we’ll discover one essential consideration for therefore known as ‘seed buyers’.

One of many causes fairness funding for start-ups is extra out there than ever earlier than is that the federal government has been encouraging buyers with beneficiant tax reliefs, in recognition of the extremely speculative nature of seed investing; seed funding and pre-seed funding.

The Seed Enterprise Funding Scheme (SEIS) for buyers

The Enterprise Funding Scheme (EIS) was arrange in 1994 and continued to be supported by means of Labour governments. It has since been made extra enticing by the Conservative authorities, and has established itself as part of tax laws that neither of the principle events could be prone to compromise.

The Seed Enterprise Funding Scheme (SEIS), established in 2012, is an extension of EIS and affords much more beneficiant reliefs as an incentive for buyers in very early stage companies.

Within the 2014/15 tax yr, 2,185 corporations raised £168m by means of SEIS. Vital progress from the 1,995 corporations and £148m in funding in 2013/14.

The tax benefits for buyers in an SEIS qualifying enterprise are important. A person investor could make a number of SEIS investments of as much as £100,000 every year and qualify for:

• 50% revenue tax aid: say an investor was contemplating a £50,000 funding, they’d declare again £25,000 of tax paid.
• 50% capital acquire re-investment aid: say the identical investor, contemplating a £50,000 funding, had a revenue from a enterprise they’ve offered. £25,000 of that revenue will probably be excluded from their capital features – which can save them between £10,000 and £14,000 of tax.
• 100% capital features exemption: if the funding does effectively and the investor sells their fairness, the revenue they make, after a three-year qualifying interval, is totally free from 20% capital features tax.
• Loss aid: ought to an organization fails the investor can declare a tax aid on the whole funding minus the revenue tax aid. With our £50,000 instance once more – the investor has already acquired again £25,000 in revenue tax aid. If the enterprise fails they’ll offset the remaining £25,000 towards their present tax invoice. If they’re the next price (45%) tax payer, that can save them an additional £22,500 in revenue tax.
• 100% inheritance tax aid: offered that investments are held on the time of loss of life and have been held for 2 years could be handed on free from inheritance tax.

How start-ups qualify for SEIS

You’ll be able to see that these are important for an investor paying revenue tax. And much more so if they’ve a capital features tax legal responsibility and/or are considering their very own mortality. Subsequently it will be a wrestle for a start-up with out SEIS qualification to draw an fairness investor. The excellent news is that the foundations are fairly straightforward to fulfill. It could be useful to seek the advice of an accountant, however broadly the factors are:

• Much less that two years’ buying and selling: that is the one that the majority typically catches companies out. The 2 years is on the time of the fairness being bought, so keep in mind that a fundraise can typically take months to finish. And buying and selling means any form of income exercise, this might embody your small experiment on a weekend market stall earlier than you even registered the corporate.
• Lower than £200,000 in gross belongings and few than 25 full-time workers (or part-time equal) on the time of the share concern.
• A ‘qualifying commerce’: most trades are qualifying, however some, comparable to some monetary companies and dealing in land & property growth (together with property intensive actions comparable to lodges or nursing properties) are excluded.

Most buyers will need certainty about SEIS qualification. An utility for ‘superior assurance’ could be submitted to HM Income & Customs for approval. It’s not tough (the shape is right here) and makes subsequent paperwork simpler.

An utility is generally processed in round 4 weeks, however typically there are delays. Anecdotally, we’re listening to that functions are taking round six to eight weeks at present. So it’s good to get the appliance underway as quickly as you may.

The utmost increase underneath SEIS is £150,000. However typically this must be sufficient to get a enterprise up and working and capable of create some proof factors earlier than needing to boost more cash.

Past this the enterprise can increase its subsequent funds, as much as £5m, underneath the EIS scheme. The tax reliefs have an identical construction, however are much less beneficiant – e.g. 30% revenue tax aid – to replicate a barely much less dangerous funding.

HMRC has a information to SEIS: www.gov.uk/steering/seed-enterprise-investment-scheme-how-companies-qualify. And a helpline: 0300 123 1083. Each are simpler and extra helpful than you would possibly anticipate.

Are you in search of funding? Startups.co.uk, with Price Capital, has launched the Begin-Up Sequence, a year-long competitors giving one firm the prospect to win fairness funding of £150,000 each month from a £1.8m SEIS fund. To seek out out extra go to: startups.co.uk/thestartupseries