Seed Enterprise Investment Scheme (SEIS) fund managers are warning investors to buy their equity stakes in new start firms now rather than miss the key tax filing deadlines.
Most investors wait until the approach of the tax year end on April 5 to sink their money in a SEIS, but this can lead to delaying the payment of tax breaks.
One firm, Kuber Ventures, reckons at least half of SEIS investors take part in a rush to invest during March to pick up the tax benefits before the end of the taxa year.
But the strategy can hit savings and cash flow as SEIS investors must have a certificate for HMRC confirming their stake in a new start business before they can reclaim the generous tax reliefs.
Investing now gives time for the certificates to arrive.
The advantage of investing sooner rather than later is the certificate lets investors set off any tax reliefs against tax that should be paid on January 31, 2014
Waiting to later means the investor must pay their tax bills and wait for a tax refund that can sometimes take weeks or months to process.
“Trying to time your investment for the tax year end rush is no more tax efficient than making the investment earlier and can hit cash flow,” said John Williams, managing partner at Kuber Ventures.
“Delaying an investment means investors will not pick up their tax breaks until later in the year, but putting money into company now allows investors to offset their reliefs against tax that needs paying now.”
Fund managers, including Williams, are urging investors not to consider SEIS, Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) on a rolling basis throughout the year so they can tie in tax relief with any tax payments are due.
Saving CGT and income tax
In January each year, taxpayers must pay the balance of any tax owed for the previous tax year plus the first payment on account towards the next tax year’s estimated tax due. The second payment on account is due in July.
Setting off SEIS, EIS or VCT reliefs in January reduces these payments and allows the investor to keep their cash.
“Waiting does not mean the tax reliefs are lost, but investing earlier makes sense for most taxpayers,” said Williams.
Under SEIS, investors can take a 50% reduction on income tax paid, regardless of their marginal rate of tax. This can be £50,000 on the maximum SEIS investment of £100,000.
Capital gains tax exemptions are also available on the disposal of assets in the tax year where the funds raised go into a SEIS.
Find out more by visiting www.SEIS.co.uk