Tax Video Update - Seed Enterprise Investment Schemes

14 October 2013 •

Warrener Stewart Tax Update

Seed Enterprise Investment Scheme (SEIS)

Why the reminder?

FA 2012 introduced the Seed Enterprise Investment Scheme (or SEIS) which offers great tax efficient benefits to individuals while also encouraging investing in small and early stage start-up businesses in the UK. SEIS applies for shares issued on or after 6 April 2012.

We are concerned that not enough investors and investees are coming together to use the relief.

Tax reliefs available

Income tax 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. It is possible to carry back relief to the preceding tax year. The shares in the new SEIS company must be retained for at least three years.

In addition, 50% of chargeable gains realised from disposals of any assets in 2013/14 and reinvested via the SEIS in the same year will be exempt. This was 100% for gains made in 2012/13.

Chargeable gains on disposals of SEIS shares will be exempt from Capital gains tax provided the shares are held for at least three years.

Finally, provided the business does not perform well, the capital loss (up to the amount of income tax relief obtained) can be converted into an income loss and set against income tax of 2013/14 and/or 2012/13 tax year.

Qualifying company and investor

There are number of factors to take into account to be eligible for the reliefs.

First of all, the qualifying activity must be a new trade (less than 2 years old) and the money raised via SEIS must be spent on a qualifying business activity within 3 years of the issue of the shares. SEIS company must have a permanent establishment in the UK, cannot have assets of more than £200,000 immediately before the share issue and the number of full-time equivalent employees must be less than 25 when the shares are issued. The total amount raised by the company through SEIS cannot exceed £150,000; this is a cumulative limit and not an annual one. The company cannot previously have raised funds through the EIS or VCT schemes.

Employees of qualifying companies cannot invest, nor can directors who own or hold shares for more than 30% of the company.

Conclusion

SEIS is one of the most generous tax schemes available in the UK and is intended to be available for only a short period of time. The availability of any tax relief depends on the individual circumstances of each investor and of the company concerned. If you are in doubt whether you can benefit from the above changes, please get in touch and we will be happy to answer any queries you may have.