First SEIS Seed Start-Ups Ready To Come To Fruition

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Written By Saeed Maleki

First SEIS Seed Start Ups Ready To Come To FruitionThe Seed Enterprise Investment Scheme (SEIS) is just about to reach the stage where the pioneer companies sourcing start-up capital ought to be showing signs of offering significant returns to investors.

The first SEIS companies hit the ground running when Chancellor George Osborne announced the ground-breaking scheme in Budget 2012 and fired the starting gun on April 6 in the same year.

SEIS projects are due to run for three years, so the first schemes end at the earliest on April 5, 2015.

Investors would hope that projects would now be attracting attention from buyers ready to turn their £100,000 of priming cash into profits.

Those that have backed winners will pick up tax-free rewards from their investment and hard work.

Success story

Data on how SEIS is performing is sparse.

HM Revenue & Customs (HMRC) releases figures of how many firms are in the scheme and how much cash they have raised sporadically to keep SEIS on the radar.

However, there is no list of schemes seeking funding or those running as SEIS.

This is a shame as SEIS allows investors to get back 78% of their investment with no tax if the project is a success and 105% tax relief if the deal flops for the first round of funding in 2012.

HMRC figures from 2013 suggest more than a 1,000 small start-ups raised £82 million from SEIS.

As HMRC figures are generally related to tax years, the assumption would be most of those companies joined SEIS in 2012 and will come to fruition during the 2015 tax year.

One success story is upmarket salad dressing producer Scarlett & Mustard.

Before joining SEIS, sales were running at less than £100 a day – post-SEIS turnover is £400,000 a year thanks to deal with top people’s shops Waitrose and Harvey Nichols. The firm was one of the first companies to run with SEIS and likely to be an early success for the scheme.

Performance review

Now SEIS has reached the halfway stage for the first deals, the government is now looking at reviewing performance – along with how the Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) are working as well.

A consultation has been launched – and one possible outcome could be raising the cash limit from £150,000 over two tax years for SEIS to something nearer £250,000 to attract more professional investors.

The fear is the low investment threshold is stopping sophisticated investors because the cost of entry into SEIS is too high in terms of due diligence, which adds an estimated 10% to the investment bill.