For many successful entrepreneurs their business is so much more than just a way to earn a living – it gives meaning to their lives and helps define who they are.
Successful business owners like to be in control; after all, that is the key reason why the business has survived and is now thriving. Yet taking advantage of all the opportunities that are now presenting themselves to you could require access to more financial capital than you currently have available.
However, there are options for you to consider. There are several schemes available designed to help small, early-stage companies like yours to raise finance. Whilst they will not be suitable for everyone, the schemes are based on offering a range of tax reliefs to investors who buy new shares in your businesses. We’ve put together a simple guide to the eligibility rules and benefits of each scheme.
The schemes shown below are intended to encourage investment in higher risk, trading companies, so a number of types of trade are excluded.
Seed Enterprise Investment Scheme (SEIS)
Under the rules of the SEIS, the maximum total amount that can be invested in your company is £150,000. But first you need to work out if you qualify. Here are some of the conditions:
- If your company is already carrying out a qualifying trade, it must not have been carried out for more than two years by either your company or any other person who then transferred it to your company
- The gross assets of the company must not be more than £200,000
- You must have fewer than 25 full-time employees
- If you’ve received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust, you cannot use SEIS
- Your company must not be a member of a partnership or be a 51% subsidiary of another company
- The business must not be in financial difficulty
- Your company must exist to carry on a qualifying trade (see below);
It’s worth noting that certain activities do not qualify under SEIS rules. These range from farming and dealing in land to banking or running a residential care home.
Enterprise Investment Scheme (EIS)
If your company is looking for investment on a larger scale, the EIS could be a possibility.
The maximum amount that can be invested in your company in any 12 month period is £5m. Overall investment is a total of £12m – or £20m for so-called knowledge-intensive businesses that are particularly focused on research or innovation.
Once again, the first thing to work out is whether or not your company qualifies under EIS rules. The conditions are:
- Your company must be unquoted and have a permanent UK base
- The gross assets of the company must not exceed £15m before the investment and £16m after the investment
- The number of full-time employees at your company must not exceed 250, or 500 for knowledge-intensive companies (see below)
- Your company must not be a 51% subsidiary of another company
- The company must not be in financial difficulty.
A knowledge-intensive company is one that is particularly focused on research and development or innovation and there are detailed conditions that need to be met for the higher limits to be available.
Again, certain activities do not qualify under EIS rules. Newly added to that list last year were all electricity-generating and storage activities, any activities generating heat and those producing gas or fuels.
Venture Capital Trust (VCT)
A third way to inject money into your business is through a Venture Capital Trust. The rules governing these collective investment schemes are similar to those for an EIS – but we will be looking more closely at VCTs, and investigating other ways to raise early capital for your business, in a series of articles to be published on the Entrepreneur Club site.
Please note that this is unlikely to be the first option for raising finance, as there will be conditions attached by the fund managers to any agreement reached, which by their nature will be more onerous than those imposed by a mainstream lender.
Please be aware that these schemes are only suitable for sophisticated investors willing to take a high risk with their capital as there is a risk that an investor may lose some or all of their capital if the company invested in fails.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.