Have you had that fabulous idea that cannot fail, but can’t get funding from your Bank without giving a personal guarantee?
Then the SEIS, or Seed Enterprise Investment Scheme to give it its full name, could be the perfect solution for you.
The problem you face when starting off in business on your own is to get investors willing to back you.
By definition you don’t have trading history to back-up your confidence and you won’t have / or don’t want to offer personal assets to guarantee the debt.
On the other hand an investor knows that funding a startup is high-risk. Most start-ups fail after all.
The SEIS, a little known scheme set up by the former chancellor attempts to solve these problems by giving the investors large tax reliefs from the outset and also providing further tax reliefs as compensation should the business fail.
Who can use this scheme? Just about any start-up or company that has been trading for less than 2 years with few exceptions.
Who can invest? Just about anyone as long as you’re not an existing employee or own 30% or more of the company i.e. You (That rules out your spouse, mum, dad and children too by the way) But friends can invest- up to £100,000 if they have the cash and the tax bill. So can wider family – brothers and sisters.
What do Investors gain? 50% of their investment can be offset against their tax bill straight away even though they have to hold the shares for 3 years. So that £100,000 investment allows the investor to reduce his tax bill by £50,000.
Should he sell his shares after the 3 years have expired, there is no capital gains tax. Should the business be profitable our investor will also be eligible for dividends.
And what if the business fails? The Investor can claim a further relief of his marginal tax rate multiplied by the amount of his investment less the tax he has already recovered. To explain that – our investor above has invested £100,000 and claimed back his £50,000 relief. Should the business fail he, as a higher rate tax payer, can reclaim 40% of £50,000 (£100,000 – £50,000) or £20,000.
If there is a better way to fund your startup, Assured FD Services is unaware of it.