Schemes and initiatives available to encourage investment.
There are various schemes and initiatives available to encourage investment in small and growing UK-based businesses. Certainly, encouraging investment in small businesses has always been a priority for successive UK governments, but the process can be confusing if you’re a small business looking for funding.
What's the big deal?
It’s simple: make it easier and more attractive for investors to put their money into small and growing businesses. With banks increasingly reluctant to (and not really set up for) invest in small, sometimes risky ventures, encouraging business angels or VC investors to back innovative smaller businesses is even more urgent.
What's out there?
Two main schemes to deliver this are the Enterprise Investment Scheme (EIS), which launched in 1994, and the Seed Enterprise Investment Scheme (EIS) which came along in 2012.
How does it work?
The EIS offers investors potentially significant income tax and capital gains reliefs when they make an investment into an EIS eligible startup or business. For a wealthy investor, the benefits are clear: they can claim back up to 30% of the value of their investment in the form of income tax relief. So a HNWI making an investment of £10,000 can save £3,000 in income tax.
Do we qualify?
You can get more detail on the EIS here. But in short, if you are a business looking to secure some EIS money, then you will need to satisfy the following criteria:
- Your company can raise a maximum of £5 million in total in any 12-month period under EIS (if you raise more, only up to £5 million worth of shares with be eligible for EIS).
- Your company must not have more than £15 million of gross assets.
- Your company must have fewer than 250 full-time equivalent employees.
What about the SEIS
This scheme aims to help earlier stage companies that have yet to generate much in terms of sales or revenue. The principle is similar – investors receive attractive tax refunds to encourage them to invest. Under SEIS rules, investors are allowed to claim back up to 50% of their investment via income tax relief as well as being eligible for significant capital gains tax reductions.
Would we qualify for that?
If you’re keen to attract SEIS investors, you need to make sure you satisfy the following conditions:
- Your company can only receive a maximum of £250,000 (previously £150,000) through SEIS investments in its lifetime.
- Your company must not have more than £350,000 in gross assets (previously £200,000) at the time that the shares are issued.
- Your company must not have been trading for more than three years (previously two years) .
- Your company must have fewer than 25 full-time equivalent employees.
Who uses these schemes?
SEIS is especially popular for companies looking to raise finance via crowdfunding and it has so far proved a successful tool in matching investors with funds to deploy with companies in need of investment. You can get more details here.
So, if your company is in need of growth capital, checking whether you are eligible for either of these schemes might be a good idea.