Smart Investors Look For SEIS Seal Of Approval

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Written By Mahmoud Sarvari

Smart Investors Look For SEIS Seal Of ApprovalSmart entrepreneurs looking for business angel investment can look to enhance their prospects with a Seed Enterprise Investment Scheme (SEIS) seal of approval.

With a new study revealing 90% of business angels insist on SEIS pre-approval for their investment cash, entrepreneurs wanting financial help with their start-up can make their venture more attractive to investors under the scheme.

Before going to business angels, entrepreneurs need to submit the details of their startup to HMRC’s Small Company Enterprise Centre.

Specialists at the centre go through applications to join SEIS or the Enterprise Investment Scheme (EIS) and register the business as compliant under the tax schemes.

This puts investors at ease and aids entrepreneurs in their hunt for cash as one of the top pitch questions is likely to be ‘Have you got SEIS or EIS pre approval?”

Unlocking tax breaks

The entrepreneur who has to answer ‘No’ and explain why not is at an immediate disadvantage.

Business angels could think the entrepreneur has failed to do their homework or wonder if the business fits the tax break template.

In some cases, it could make the difference between missing and obtaining much needed startup cash.

SEIS pre-approval is important for business angels as being part of the scheme unlocks generous income tax and capital gains tax breaks – and offers loss relief if the project does not work out.

Joining SEIS means more than just filing a few forms for checking by the tax man.

A SEIS company must keep to strict trading rules and must remain within them for the three-year life of the investment or HMRC can claw back some or all of the investment tax breaks.

Something or nothing

A key decision for the entrepreneur and the investor is do they want to take part in a SEIS project?

For the investor, the taxes saving opportunities are the main attraction.

For the entrepreneur, questions arise like do they really want to give away a significant share of their business before they know how growth and profits will pan out?

Some take the view that it’s better to have a percentage of something than all of nothing.

But its clear investors want the extra protection for their cash offered by a SEIS.

The latest HMRC figures show that in the 2012-13 tax year, 1,200 companies raised £87 million from SEIS investors.