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Making the most of the Seed Enterprise Investment Scheme

Small businesses often become trapped by the major banks, who charge high interest rates and fees for any borrowing – if they are willing to offer finance at all.

Indeed, despite the introduction of the Project Merlin agreement, the five main UK banks missed their target for lending to smaller firms by £1.1 billion in 2011.

Against this backdrop, even successful small businesses can find it hard to access the finance they need to thrive, which means they should consider taking advantage of a new scheme which applies to shares issued on or after 6th April 2012 and is expected to become law when the Finance Bill receives Royal Assent in July 2012.

Under the Seed Enterprise Investment Scheme (SEIS), companies which are two years old or less, with 25 or fewer employees and assets of no more than £200,000 can raise up to £150,000 in funds from venture capitalists.

However, this only applies if the company has not previously raised money through the Enterprise Investment Scheme or Venture Capital Trusts. The company will be able to use these schemes to follow on from SEIS, providing at least 70 percent of the money raised from the SEIS issue has been used.

In return, anyone investing up to £100,000 in a qualifying business will be able to take advantage of income tax relief of 50 percent, as well as an exemption on gains realised in 2012-13 which are invested through SEIS in the same year.

Where shares are disposed of after having been held for three years, the gain is free from capital gains tax. After the first year, there will be a carry back facility for the income tax relief, meaning that any unused element of the previous year’s allowance can be utilised.

While this will be particularly beneficial for individuals who have been left increasingly out of pocket by plummeting interest rates and are looking for opportunities that offer a sensible return on their capital, the income tax relief is not available where the investor is an employee of the company (unless they are also a director) or has a more than 30 percent interest in it.

Whether your business is eligible for the new scheme or not, the team at TWP can help with your funding requirements. We have established professional business relationships with corporate finance providers across Surrey, as well as an extensive list of companies and individuals who are looking to invest in viable businesses.

As our team understands the working capital needs of businesses and the requirements of particular funders, we can ensure the best match and negotiate the right financial package for each business. Therefore, if you would like dedicated advice tailored to your particular needs, please contact Sarah Gardner, corporate tax manager, on 01932 704700.

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