What SEIS is; Seed Enterprises investment scheme:
In April2013; Chancellor George has introduced SEIS as a financing method for small businesses and start-ups that fail to raise funds from banks.
SEIS schemes help unlisted small businesses and startups in raising funds by encouraging investment in these businesses; these schemes provide tax reliefs and shares to investors in return of their investments.
SEIS are more focuses startup businesses. These startups should have less than 25 employees and gross profit of not more than £200,000. Startup businesses or other business can use SEIS just for once in whole business life and they cannot earn more than £150,000 through this scheme. Such businesses should not be controlled by any other company and in case of subsidiaries ownership should up to 50 percent. The money earned with the help of SEIS should be used within three years for qualifying trade as in the case of EIS.
Approval of HMRC:
Before going to invest in SEIS scheme investors prefer to get approval by HMRC “HM Revenue & Customs”. HMRC provides pre-approval to those companies who look at tax relief for SEIS companies. If the companies provides the assurance that fund raised from SEISscheme will be spent in qualifying trade within three years; HMRC approves the applications of such companies.
These companies provide tax relief in income and also assureto give share to investors as return on investment. So the investor can trust this company because itrequires approval from HMRC it means there is no chance of fraud it this scheme. But SEIS is available once in whole life of business.
Pre-approval is not important But many SEIS startups usually fail to submit their plan to HMRC.
Fund managers say that start-ups without approval are very risky for investors. Tax relief is only possible if once investor has made investment and is committed to invest his amount for a fixed period of time.
The risk in SEIS is that funds without pre-approval do not fulfill the rules like qualifying trade (or investment in Research and development that will ultimately leads to qualifying trade), which means opportunity to get tax relief is lost.
Newman said that investing in SEIS is always secure because financial managers are very conscious to make sure that company fulfills the rules of taxation.SEIS do not provide pre-approval to companies but if the company has pre-approval HMRC will revise the qualification points and tax breaks.