Are seed enterprise limits hindering entrepreneurs?

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Written By Saeed Maleki

Are seed enterprise limits hindering entrepreneursChancellor George Osborne created the Seed Enterprise Investment Scheme (SEIS) in the Budget 2012 to launch small business startups via private investment.

For the startups, SEIS offer investment from experienced business people who are able to take risks (unlike the big banks, which may have rejected financing).

For investors, some of the most desirable tax breaks in the world are included in the legislation.

In 2012, Department for Business, Innovation and Skills figures showed that 102,000 new businesses begun trading at a rate 280 per day – increasing the number of UK-based small businesses to a record 4.9 million.

Contractors, freelancers, and self-employed workers starting these small businesses (defined as business with a maximum turnover of GBP 5.6 million and less than 50 employees) gave work to 14.4 million individuals.

In addition, the combined turnover of GBP 16.6 billion accounts for around three-quarters of private sector employment in UK – and 50% of the entire turnover of private businesses.

Matt Hancock, the UK’s Enterprise Minister, has stated that these developments “suggests the economy is turning a corner and the financial climate is supportive for entrepreneurs.”

“The number of small businesses has increased by 447,000 since 2010, a rise of more than 10%.”

Nevertheless, he has asserted the need for further action, warning that “the Government has much more to do to foster entrepreneurs, like making employment rules and job creation easier.”

Another bone of contention frequently analysed is the investment limits – which are often seen as too low to create many business and therefore an obstacle for further SEIS adoption.

The limits

Investors can funnel GBP 100,000 per tax year into an SEIS – yet are hindered by the three-year maximum of GBP 150,000 in total.

SEIS expert Mark Payton of venture capitalists Mercia Fund Management argues that the increasing popularity of the schemes calls for a renewed look at the limits.

“Early-stage businesses face fundamental problems due to the lack of follow-on capital,” Payton claims.

Although the cash supports the startups, the capital limits means at a later stage the SEIS may not provide the goods – forcing startups to look for alternate sources of funding.

“While SEIS is a welcome tool for entrepreneurs that paves the way for business growth, more is needed if Chancellor George Osborne is serious about backing British businesses,” Payton continues – claiming that the investment limit should be raised to GBP 250,000 per business.

This will allow businesses to “speed up growth, increase export potential and to make more jobs.”

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