Partner Article

New Seed Investment fund to kickstart economic recovery

Governments have always provided tax incentives aimed at encouraging investment in high risk,
unquoted trading companies.

In recent years, the Enterprise Investment Scheme (EIS) has provided the most attractive tax
incentives, in particular, the 30% income tax credit given on the amount invested.

Expanding upon EIS, a new regime, geared to kick-starting the economic recovery is due to become
effective from 6 April 2012. Known as Seed Enterprise Investment Scheme (SEIS) this will deliver
enhanced tax relief for investors and the possibility of tax-free capital gains on investments as well as
Capital Gains Tax exemption on certain reinvested gains.

For smaller companies the benefit is a new potential source of business expansion capital at a time
when banks are unwilling to provide similar funding.

SEIS has been designed to stimulate enterprise and is only available to companies less than two
years old, with 25 or fewer employees and gross assets of £200k maximum.

Simon Richards, partner at UNW chartered accountants, which boasts one of the region’s largest
teams of tax specialists, welcomes SEIS but warns it would not suit every qualifying company seeking
expansion capital, nor is it the panacea for all investors with available capital. He says:

“Investors who pay income tax in the UK can invest up to £100k per annum in SEIS qualifying
companies, which allows them to benefit from a deduction of income tax equal to 50% of their
investment. However, they are not allowed to own more than 30% of the issued share capital in
return.

“This means that without a substantial interest, they are investing in a company with less than two
years’ trading record, most likely with an immature management structure and gross assets of less
than £200k. You could say it is a leap of faith. This is why it is so important to seek professional
advice before making any investments of this nature.

“The tax relief benefits of SEIS are undoubtedly greater than with EIS but so is the risk. For this
reason SEIS may be better suited to those who are not looking to make large investments.”

This was posted in Bdaily's Members' News section by Simon Richards .