Still reeling from your tax bill? Then consider investing in new business.
Updated: Jan 31, 2019
I will never understand why the self-assessment tax bill deadline is 31st January. The end of what feels like the longest month of the year. The month that follows the most expensive time of year. And, for a lot of people, the end of the longest stretch between paydays. It just doesn’t make sense to me.
I’ll tell you what does make sense though, and what could soften the blow of the tax bill: investing in new businesses under the Seed Enterprise Investment Fund (SEIS).
The UK is consistently included within the top 10 on lists of the “Best countries to start a business”.
The start-up scene in cities across the UK, not just in London, is hot. It is hot in part because we have one of the lowest corporate tax rates in the G20, and also because of SEIS, and it’s big brother EIS (Enterprise Investment Scheme).
What is SEIS?
The Government’s way of investing in Britain’s new businesses is not by directly investing in Britain’s new businesses. Nor is it solely in tax relief for those businesses.
The Government’s way of investing in Britain’s new businesses is in significant tax reliefs for individuals who invest in those businesses.
How does it work?
SEIS offers huge tax benefits to those who are prepared to invest in start-ups that have been trading for less than 2 years. Benefits like 50% income tax relief at the start, capital gains tax write-offs, and up to a further 25% of loss relief if the business fails. Further benefits include gains being tax free and the investments being exempt from Inheritance Tax after just 3 years.
What are the rules?
As with any Government scheme, there are rules and guidelines. Rules around eligibility and minimum & maximum allowances.
It is worth noting for instance that businesses need to ‘apply’ to HMRC to have their SEIS eligibility confirmed. They must have less than 25 employees, have generated revenue of less than £200,000 and have been trading for less than 2 years.
It is also true that individuals cannot benefit from the scheme if making investments into businesses owned by their partners or children. But, as long as you’re not looking to get tax relief as the ‘Bank of Mum & Dad’ then you’re good to go and find some exciting new enterprises to invest in.
How do I get involved?
If you have some cash that you don’t need access to for a few years, and you are comfortable with your pension pot, then it is definitely worth considering becoming an investor.
The greatest thing about SEIS is that it’s not a scheme for the super-rich. Hundreds of businesses will accept investors in the £5k-£25k range.
Let’s say you can manage to place a £10k investment somewhere – you’d have £5k back off next year’s income tax bill anyway, and in all probability a percentage or two of a fledgling business. Three years later that percentage will hopefully have grown in value and be worth significantly more than the £5k of your net investment to date. Worst case, you’d be able to claw back £2,500 in your next income tax bill. In fact, if for some reason you don’t have a large income tax bill in the year you make the investment, you can use up to 5 years of tax returns to claim the relief.
Do some research, have a look at some of the start-up funding platforms, or ask your Financial Advisor about SEIS opportunities. Pick businesses in fields that you are interested in. Better still, pick businesses in fields that you are knowledgeable about. Most of the founders I know would be more than delighted if their investment came hand-in-hand with some useful expertise, and that way you can do your bit to sure up your investment that bit more.
Have a flutter, support new business, invest in your family’s future wealth, and soften the blow of that tax bill once and for all.
Rachel Smith is Co-Founder & Head of Product at Lifefyle - an online platform created specifically to help busy parents manage household and life admin. Lifefyle Ltd are currently raising finance, and have received advanced assurance from the HMRC that they can raise funds under SEIS. To find out more, visit www.lifefyle.com and please feel welcome to contact us.