Seed Enterprise Investment Scheme (SEIS) – Baby Business

Our friends are going to have their first baby!

After my friend Posh Dan (PD) told me (and after we had a customary drink or two) I obviously relayed the message to Mrs TTF. I was then ordered to ring him and ask “important” questions like due date, do they know the gender, have they got a name etc.

Mrs TTF is helping Mrs PD choose outfits and generally cooing. On the other hand I am looking at my mate, PD, in the same way that a dog owner views his pet before he is neutered!

TD is still in denial mode; all the fathers out there have been through it. It’s the one where you know the baby is coming (a helpful blue stick points this out) but you’re not quite sure when. This isn’t helped by all the mothers-to-be talking in strange codes “I’m 25 weeks, it’s the second trimester” …….Women, it’s simple, men know it’s nine months so just tell us how many months are left!

Anyway back to PD he is still talking about how he is going to play football (on the second phone call I found out it’s a boy) and what bike he is going to get. The Lego sets that are going to be constructed and the scalextric races they are going to have. I am just smiling and nodding. When should I break it to him that babies are a bit boring? The most excitement he is going to get in the first couple of months is deciding whether his gurgling poo machine has smiled or has wind!

I am also waiting for the first two weeks of smug exclamations that “our baby just sleeps through the night”. Following which I will be laughing inside when their bundle of joy suddenly becomes an insomniac.

Don’t get me wrong, having children is one of the best things I have ever done but it is hard, hard, hard work. At least I have the ability to get my own back for these first few years by making my children support Orient!

Having a baby is like starting a business; people need to appreciate what they are getting themselves into before, erm, depositing their funds. Cash flow is a major issue for even the most experienced entrepreneur, so how can tax help obtain more investment for your new business?

THE TAX BIT – SEIS

For investors in your business there is the potential to take advantage of an approved scheme that applies to new business ventures. The scheme is called the Seed Enterprise Investment Scheme or SEIS

What is it?

The SEIS allows an Investor in your business to claim income tax relief at 50% on an investment of up to £100,000 in a tax year in a qualifying company. No other type of business vehicle can be used.

Help for new businesses

Help for new businesses

The relief is given as a reduction in tax liability but cannot create a repayment. For example, if you have a tax liability for the year of £30,000 and invest £100,000 in SEIS you cannot have relief of more than £30,000.

Any gains realised in 2012/13 will be exempt from capital gains tax up to the value invested in the SEIS shares.

Where qualifying SEIS shares are sold more than three years after the date on which they are issued, then any resulting gain is free of capital gains tax.

If you’re Not a Company you’re not coming in!

The relief is intended to encourage investment in new companies which have been incorporated for no more than two years when the SEIS shares are issued. The company must carry on a qualifying trade, which rules out businesses such as property development, retail distribution, hotels, nursing homes and farming. The trade must be carried on for three years after the shares are issued, otherwise the SEIS relief may be withdrawn.

Hoops and more Hoops!

Unfortunately, for a scheme designed to encourage a basic level of investment, there are an enormous array of anti-avoidance provisions to prevent abuse of the scheme. Trying to summarise these in my blog is not possible but in summary:

• the investor can be a director of the company (if the investor is not a director, they cannot be an employee);
• the investor must not have a substantial interest in the company (broadly, this means they must not directly or indirectly control more than 30% of the share capital);
• the company must not acquire assets from an existing trade in which the investor has some involvement; and
• there must be no arrangements for the company to pass value of any kind to the investor beyond what would be acceptable on an arm’s length commercial basis.

There are lots of considerations including the fact that you will be giving away part of your business and the investoors cannot be existing shareholders or family. I would therefore always recommend that you receive professional advice from a chartered tax advisor in this respect.

Maybe sleep deprivation has made me cynical but my only words of advice would be:

If you’re raising funds for a new business make sure you consider the SEIS and if you’re a father-to-be practice pretending to be asleep when the baby cries!

20 March 2013 SEIS UPDATE

Capital gains realised during the year ended 05 April 2013 would be exempt from capital gains tax up to the amount invested in SEIS. In the 2013 budget the chancellor announced an extension to the Capital Gains Tax “holiday” to the extent that 50% of gains realised during the year ended 05 April 2014 will be exempt.

By Peter Cross

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