Start-ups should ‘SEIS the day’ and use tax-friendly scheme to raise finance

Government promotion of the tax relief scheme for investors in fledgling businesses is lacking, but don't let that make you miss out

This week, the nation’s entrepreneurs dutifully set out their wishes for the Autumn Statement. Like most Christmas lists, they ranged from the predictable to the ridiculous.

In the most part, the chancellor delivered for businesses in his announcement, outlining an impressive package of lending support through the British Business Bank and Funding for Lending scheme.

These measures should be welcomed and importantly send a message that the government is backing business, but we could have also seen a greater commitment to improving the landscape for alternative finance options.

The government was already on the right track in this respect. Limited lending from banks has enabled our alternative investment market to flourish and the government picked up the baton by, introducing investment incentives for early stage and growing businesses.

The success of the SEIS scheme

In 2012, Osborne introduced the SEIS scheme, a tax-relief scheme intended to stimulate investment in seed-stage businesses by providing incentives such as 50% income tax reliefs on amounts of up to £100,000 per year.

In the 2014 Budget he pledged to make this a permanent fixture and rightly so, it has been a great success. The number of start-ups applying for funding through the scheme rocketed 73% in the year 2013/14.

There is a potential to make the contribution so much greater.

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You would struggle to find a business leader that did not think these initiatives are a brilliant boon for UK business growth and investors have welcomed the scheme with open arms.

Being SEIS and EIS eligible is now an asset that businesses seeking funding promote with pride and investors are actively seeking out firms that have it.

The failure to promote SEIS

However, there is a real knowledge gap which, if closed, could unlock a huge amount of new business growth. Recent research from entrepreneurs’ network E2Exchange shows 40% of founders are unaware of SEIS and a quarter is unaware of EIS. Furthermore, October’s KPMG Enterprise survey discovered that a staggering 71% of SMEs have not made use of these generous resources.

That equates to an enormous amount of growth potential lying latent, as the pool of investors now hunting for the SEIS and EIS badge when managing their portfolio, overlook investments that aren’t eligible. It also means a huge number of start-up firms are losing out by not taking advantage.

We must see greater promotion of these schemes to both businesses and investors, with a more streamlined way to demonstrate the funding opportunities available to businesses, whether they’re at the seed-investment or growth stage.

70% of small and mid-sized businesses across Britain think the government could do more to support small businesses2. Osborne has proven that he is backing British businesses, but positive contributions schemes such as SEIS and EIS can have on the economy will have limited impact if they are not properly promoted.

James Codling and Paul Moravek are co-founders of VentureFounders, a new equity crowdfunding platform.


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