Equity investors in young companies carrying on a “qualifying business” (which includes most businesses other than property/real asset businesses and leasing of assets) can claim relief on their investment under two schemes, the Seed Enterprise Investment Scheme (SEIS) which applies to the first £150,000 raised by the company and the Enterprise Investment Scheme (EIS) which applies to the next £5,000,000 raised each year.
Investors under this scheme receive up to 50% of the amount invested by them back from the UK tax authorities, HM Revenue & Customs (HMRC), as a deduction from their income tax bills in the tax year of investment, the year before or the year after. Investors must hold the shares for three years after which, on a sale of the shares, they benefit from a 0% rate of capital gains tax on any gain.
The tax reliefs for investors under SEIS are some of the most generous in the world and significantly reduce the risk for investors in early stage startups. It is relatively easy for companies to qualify for SEIS – the first step is to seek an advance assurance from HMRC that the company qualifies.
Investors under this scheme receive up to 30% of the amount invested by them back from HMRC as a deduction from their income tax bills in the tax year of investment, the year before or the year after. Investors must hold the shares for three years after which, on a sale of the shares, they benefit from a 0% rate of capital gains tax on any gain.
Companies can raise up to £5,000,000 per year under the EIS scheme and investors can invest up to £1,000,000 per year under the scheme.
There are a large number of government grants for startups employing people in the UK and/or doing something innovative in their sector.
The most popular grants are TSB Smart Grants. There are a number of these grants, but the largest and most relevant applies to tech businesses. Startups can be awarded up to £250,000 to build and develop their prototype. This money is not repayable. The grant requires “matched funding” meaning that the company must raise investment simultaneously with receipt of the grant.