Seed Enterprise Investment Schemes – small all round

The Treasury has released figures on the take up of seed enterprise investment schemes.

The Seed Enterprise Investment Scheme (SEIS) was originally outlined in the 2011 Spring Budget, but did not formally start life until April 2013, after the usual smattering of re-announcements.  It was designed to encourage investment in new, small start-up companies with no more than 25 employees.

In November the Treasury released a ‘news story’ (aka press release) explaining how the scheme was working.  It was revealed that over 1,100 companies had raised money through the SEIS, with the average amount invested of £72,000 – less than half the maximum permitted of £150,000.  That meant total capital raised was about £82m, compared with £525m provided by the main Enterprise Investment Scheme (EIS) in 2010/11, the most recent year for which HMRC have published data.

At the same time as the Treasury was highlighting its numbers,  HMRC issued some research they had commissioned into the early months of the scheme.  Predictably this reported that “The main aims of investors for participating in SEIS were to take advantage of the front end tax relief…. and the Capital Gains Tax (CGT) exemptions from the likely gains.”  More surprising was the fact that those putting money into SEIS “were generally individuals who made relatively few investments (rather than business angels).”

This does sound eerily like the tax tail wagging the investment dog.  By their nature SEIS companies are very high risk – as the HMRC report shows, many enterprises report to SEIS because funds are unavailable from traditional sources.  If you are tempted by the tax reliefs SEIS offer, do take advice before committing any money.  There is a role for small companies in well-diversified portfolio, but SEIS companies are at the nano-sized end of small and may not be the right route to choose.

The value of tax reliefs depends on your individual circumstances.  Tax laws can change.  The Financial Conduct Authority does not regulate tax advice.

3rd January 2014