In the modern corporate world, small businesses are the ones that suffer the most in financial and growth issues, especially during the first years. For this reason, it is important to develop and implement investment schemes such as the Seed Enterprise Investment Scheme or better known as the SEIS.
These schemes not only represent a financial opportunity for start-ups or entrepreneurs, but also a way for those investors who want to bet on start-up companies. In the following article, we are going to talk to you about SEIS Benefits and the importance it has for small companies taking their first steps.
What is SEIS?
The SEIS, also known as the Seed Enterprise Investment Scheme, is an investment scheme developed in 2013 to complement the functions of the EIS. The SEIS was developed exclusively to work with small companies, especially those that are taking their first steps and are having trouble raising funds to grow financially and operationally.
SEIS Benefits for the Company
The benefits of this investment scheme not only transcend the investors but also transcend the companies that are taking their first steps and wish to grow both financially and corporately. Below we will list some of the SEIS Benefits that companies can consider.
- The first and most important benefit is that companies can raise funds from investors who are attracted to the powers of the SEIS.
- Once investors invest they have the power to participate operationally in the company. Companies can benefit from the knowledge, skills, and networks that investors bring with them.
- Entrepreneurs or companies can also benefit from the presence of investors, who can monitor and manage the company’s financial and operational activities. It is an effective way to reduce risks or complications.
- With the SEIS, small businesses do not need to resort to large bank loans.
- With the SEIS, small businesses that wish to endure over time and expand in the long term will be able to benefit from the EIS in the future.
In recent years there has been a significant increase in applications and approvals for the SEIS. This means that in the modern corporate era, new companies have high regard for SEIS Benefits and the effectiveness of the scheme in attracting investors and raising funds.
SEIS Benefits for the Investor
As for investors, they can benefit from the Seed Enterprise Investment Scheme (SEIS) not only at the financial level but also at the fiscal level. These are some of the most important benefits of the SEIS, which investors take into account before taking risks in a start-up company.
- The main benefit is the tax relief that investors receive, which must be 50% of their total investment. However, as they are small businesses, investors can only invest a maximum of £100,000 per year.
- On the other hand, the SEIS protects the interests of investors. If the company goes bankrupt or the company’s shares are devalued, investors can claim losses based on the tax for the tax year. This is known as loss relief.
- Investors can benefit from the profits made from the sales of shares. However, the sales are exempt from capital gains, also known as CGT.
- Investors can also protect their interests and assets from inheritance tax. After 3 years, investors’ assets are protected from inheritance tax, which is currently 40% on the estate.
- Even the spouses of investors can benefit from the SEIS. Spouses can claim tax relief on investment of up to £100,000.
- Finally, an investor can become the director of the company. This is essential for a given company to want to grow financially and operationally because the company can benefit from the investor’s experience, knowledge, and skills.
This is why investment schemes such as SEIS are so effective in attracting investors to the company because SEIS Benefits are very attractive to investors despite the risks they may take.
SEIS Loss Relief
As mentioned above, loss relief is a mechanism to protect investors’ financial interests. This mechanism was suggested and developed by the government to protect investors in situations where investments may fail or in situations where the company goes into liquidation. Loss relief can be offset against taxes defined on other income and assets.
It is important to mention that this compensation is estimated according to the highest tax rate the investor has. This means that the investor can claim a certain amount that is calculated by multiplying the amount invested by the tax rate. This type of protection is one of the SEIS’s most attractive benefits for investors.
SEIS Carry Back
Similarly, investors can also make claims to offset the tax relief. It is part of the SEIS Benefits because investors can make claims for investments made in a year before the tax year.
This also means that investors can claim all or part of the shares issued by the company in a year before the fiscal year. This claim is subject to an annual limit, which is a maximum of £100,000.
However, investors cannot process the claim in the time they want. Investors can only file a claim if the company has been in business for more than 4 months or has spent more than 70% of the total investment received.
To begin the complaint process, the company must complete a form known as “SEIS1” and submit it to HMRC, specifically the Small Company Enterprise Centre, also known as SCEC.
Once the form has been reviewed with the other legal requirements, the SCEC issues a copy of the “SEIS3” form to each of the investors who are applying for the claim. These forms are also sent to the company, and investors will already be able to submit the document as part of their tax return.
Finally, it is important to mention that this type of application is subject to the individual circumstances of each investor and company. For this reason, this type of SEIS Benefit is usually updated by the government. These kinds of benefits are reviewed annually.