Tax break for start-up angels
10th December 2014
In the autumn statement, the chancellor announced plans to make it easier for companies and investors to take advantage of tax relief available from the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) by allowing them to register online from 2016.
The tax breaks have provided a lifeline for entrepreneurs, while offering individuals the chance to make big gains by betting on new businesses. Marcus Greenwood, founder of UB, a one-year-old tech business said, “you never know, you might hit the jackpot and invest in the next Facebook.”
Under the EIS, introduced in 1994, investors can reduce their tax liability by 30%. This is the reward for accepting the risk of putting money – up to £1m a year – into young companies. Businesses can receive up to £5m in backing from EIS. The SEIS was launched two years ago for micro companies, with assets of less than £200,000. They can raise a maximum of £150,000, and backers can claim up to 50% tax relief on investment capped at £100,000 a year.
Shares in both EIS and SEIS companies are exempt from Capital Gains Tax if held for at least three years. SEIS investors are eligible for further capital gains relief if they put their profits into other micro firms.
In 2012, £1.1bn was pumped into more than 2,500 small businesses through the EIS. In the first year of the SEIS 1,100 start-ups benefited to the tune of £82m.
UB offers a “universal basket” – a single checkout through which online shoppers can pay for all their goods, bought from any site and using any device. It also works with ecommerce companies, allowing them to sell on their own platforms rather than having to redirect customers to payment firms.
In October, UB raised £250,000 from Force Over Mass Capital (Fomcap), a £15m fund that specialises in tax-efficient investments. It attracts backers for tech start-ups using incentives offered by the EIS and SEIS.
Despite such a potential, the EIS and SEIS are still under the radar. “Very few people know about them,” said Greenwood.
According to the Business Angels Association, almost 70% of investors said the incentives had convinced them to put money behind small firms. Still more could benefit though. “It’s one of those things that people are just not aware of because there are so many different tax releifs,” said Martijn de Wever, who set up Fomcap with Theo Osborne.
Luke Davis set up IW Capital, his EIS investment firm, four years ago and has helped raise cash for 16 companies. Money is not the only benefit though – backers also provide advice and support. “It’s infinitely better than going to a bank because you have a team of people helping you to drive the business forwards,” said Davis.
Industry experts are hoping more people will follow his example. “I still meet many entrepreneurs and investors who are not aware of this scheme, ” said Jenny Tooth, chief executive of the Business Angels Association.
Tooth’s association has asked for the SEIS investment cap to be raised from £150,000. “Many investors have found it frustrating when a business needs more money than that, so some have opted out,” Tooth said.
Nevertheless, the tax breaks make Britain an attractive place to start a business, she said.
For more details please see the original article: The Sunday Times, 07/12/2014, Business Section, Small Business. Kiki Loizou, p.10.