SEIS offers investors tax-efficient benefits in return for investment with the objective of helping early-stage companies raise equity finance. Entrepreneurs must be prepared to exchange equity for capital funding.
A company can raise up to £150,000 through SEIS investment and SEIS investors can invest a maximum of £100,000 in a single tax year, which can be spread over a number of companies. Investors can hold up to a 30% stake in each start-up.
No capital gains tax is paid on profits earned on shares held for more than three years. If the SEIS investment makes a loss, the investor will also be able to offset the capital loss against income. HMRC operates an Advance Assurance facility which certifies that at the time of application, the business was SEIS-compliant.
A company must meet the following criteria in order to be eligible:
The Small Companies Enterprise Centre (SCEC) decides whether the company, its activities and shares qualify. If they meet the requirements of SEIS, SCEC issues the company with a certificate and supplies claim forms for the company to send to its investors, so that they can claim tax relief.
When combined with an R&D tax relief claim, an innovative start-up business can achieve a large part of its funding requirements with SEIS. To do this, the company will need to find four investors who invest £37,500 each, and who will receive a 25% share in the company in return. Investors can then reclaim 50% income tax on their investment (£18,750 of income tax relief) through their self-assessment return, regardless of their tax rate.
The business can then invest the £150,000 in qualifying R&D activities and make its R&D tax credits claim.
Many start-up businesses don’t claim their R&D tax credit entitlement, because they think that the scheme doesn’t apply to them. Yet, businesses can benefit from R&D tax credits whether they are making a profit or a loss.
Loss-making businesses can claim an R&D tax credit payable (cash) amount from HMRC, while profit-making businesses can significantly reduce their corporation tax bill. Businesses can then reinvest the tax credit payable or corporation tax savings back into the business to support further development activities.
To make the process of claiming your R&D tax credit entitlement easier, it is worth speaking to an R&D tax credits specialist to help you recover up to 33% of your development expenditure.
Contact us to find out how we can help you claim your R&D entitlement and how to combine your claim with SEIS.