The Seed Enterprise Investment Scheme (SEIS) has raised start up cash for 7,500 small businesses over the past three years.
A record 2,905 companies raised funds from SEIS in the 2014-15 tax year, according to the latest figures available from HM Revenue & Customs (HMRC).
That was a slight increase from 2,845 the previous year and 1,729 in the first year of the scheme, which was introduced by Chancellor George Osborne in his Budget 2012.
Investment firm Radius Equity says SEIS offers start ups vital funding as an alternative to banks, which are still shunning lending to business.
The firm has analysed HMRC’s figures and explains that much of the funding is going into tech companies and catering businesses.
Where the money has gone
The investment breakdown shows:
- 5% of SEIS companies are in the tech sector
- 1% offer business services
- 6% are restaurants or catering firms
- 13% are in the recreation sector
- 8% are manufacturers
- 5% are involved in energy or water supply
Entrepreneurs seeking SEIS funding are finding that HMRC pre=approves around 94% of applications.
“This shows the people looking for start up cash are presenting clear and effective business plans and know what they are doing,” said a spokesman for Radius Equity.
“The failure rate is really low for start-ups.
“SEIS has been a real success for the government and has focussed investment where it was really needed to create jobs, raise money where the banks were failing and to offer top returns for investors.”
SEIS tax breaks
One of the major factors encouraging investors to take part in SEIS start ups are the generous tax breaks offered by the government.
Providing shareholders in a start-up company hold their stake for three years, they gain 50% tax relief on income tax paid on an investment of up to £100,000.
Capital gains tax reliefs are also attractive, offering breaks on disposing of other assets to raise the cash for a SEIS investment and tax free growth on shares in the SIS company.
If the venture fails, investors also gain loss relief to offset against other income.
Radius Equity director Gary Robins said: “SEIS has been one of the most significant and innovative business finance measures since the financial crisis.
“Start ups thrive on funding and SEIS allows entrepreneurs to concentrate on their business with the confidence that funding is in place and gives them a firm financial basis to plan and grow.”