The Seed Enterprise Investment Scheme (SEIS) has seen a huge surge in popularity as applications for funding approval soar by 75%.
The specialist investment scheme run by HM Revenue & Customs (HMRC) which links investors with entrepreneurs seeking cash for their fledgling businesses is a runaway success, according to financial experts.
In the 12013-14 tax year, HMRC was inundated with 2,582 applications for SEIS approval from new companies, according to a report from investment specialists Radius Equity.
That figure compared with 1,644 received in the previous tax year.
Now, financial experts are claiming that SEIS is raising millions of pounds for entrepreneurs who have had funding applications rejected by the banks.
Hit with investors
Not only has SEIS proved a massive hit with investors and small businesses, but the Enterprise Investment Scheme (EIS) has also seen a rise in applications.
HMRC told Radius Equity that 2,718 businesses put in applications to raise funds through the scheme in 2013-14 – an increase of 16% over the previous year.
Radius Equity director Stephen Norton told specialist investment web site SEIS.co.uk: “The generous tax breaks offered by the government under these two investment schemes are attracting attention from huge numbers of entrepreneurs and investors.
“These schemes have definitely helped fill the hole left by the banks more or less leaving the sector.
“SEIS in particular offers a new source of funding that was not previously available to start-up businesses.”
SEIS was launched by Chancellor George Osborne in the UK Budget 2012 to fill the funding gap left by commercial banks refusing to lend to start-up businesses.
The scheme is designed to temper investment risks against the need of small start-ups with no trading history to source cash backing.
SEIS offers investors advantageous tax breaks in return for up to an initial £100,000 equity stake.
In return, they receive 50% income tax relief, a 50% capital gains tax reduction against assets sold to raise the investment stake, no tax on disposal of their SEIS shares if the company succeeds and loss relief against other income if it fails.
Entrepreneurs benefit as they take on no debt like they would with a bank loan, which boosts cash flow, while stakeholders are rewarded on company performance.
EIS offers similar tax breaks to EIS, but is aimed at businesses leaving the start-up stage and looking to fund growth. The maximum investment limit is £1 million.