Whether you are an entrepreneurial investor or a new company looking to attract investment you cannot afford to ignore the generous tax reliefs being offered under the new Seed Enterprise investment scheme (SEIS) introduced by HM Revenue and Customs (HMRC).

The scheme applies to subscription for shares after 6 April 2012 in SEIS qualifying companies, broadly speaking these are start up companies or companies that have been trading for less than two years, have assets of less than £200,000 and fewer than 25 employees.

The tax reliefs available to the investor for SEIS investments up to £100,000 in the tax year are as follows:-

• Income tax relief on the investment at 50%

• If shares are held for three years then any capital gain on the investment is free of tax.

• In the unfortunate situation where a loss is made on the investment you are able to offset the loss against your other income.

• Reinvestment relief – if an individual makes a capital gain during 2012/13 and the gain is reinvested in a  SEIS company the gain is exempted.

Both the first and last reliefs may be clawed back if the shares are sold within three years.

Although a company will not be able to issue SEIS shares if it has previously raised funds under the Enterprise Investment Scheme (EIS) or Venture Capital Trust (VCT) regimes, it can raise EIS or VCT monies after a SEIS funding round, albeit not until the company has spent at least 75% of the SEIS monies raised.

There is a limit of £150,000 on the funds which can be raised under SEIS.  All funds must also be used in a qualifying activity within three years of the date of the original investment.

Investors are able to claim the tax relief once 70% of the funds raised from the share issue have been used.

In order for a company to qualify for the scheme it must meet a number of requirements and it is important to get these right from the outset to ensure the tax relief is not lost.

Example

Peter sells an asset in April 2012 for £150,000 and makes a capital gain of £50,000.

In June 2012 he makes a £50,000 SEIS qualifying investment.

In August 2015 he sells the SEIS shares for £100,000.

Peter will avoid paying tax of £14,000 on the initial capital gain (28% X £50,000). He will then get income tax relief of £25,000 (50% X £50,000). Finally, he will avoid paying tax of £14,000 on the disposal of the SEIS shares (50% X £50,000).

Peter’s total tax relief on the £50,000 investment…..a staggering £53,000!

For larger or established companies the original EIS scheme is still in place that has less generous but still significant tax reliefs available. If you would like to discuss either of the schemes in more detail please contact Stuart Shaw on 01622 758257 or via email at stuart [at] loucas [dot] org [dot] uk

On 16 February 2012 the Department for Business, Innovation and Skills (BIS) announced that more businesses are now eligible for the Enterprise Finance Guarantee (EFG) scheme which allows smaller companies without the credit history to secure a normal bank loan.

The Enterprise Finance Guarantee (EFG) is now available to businesses with an annual turnover of up to £41 million. The new threshold, up from an initial turnover limit of £25m, means that eligible small and medium enterprises (SMEs) will be able to take advantage of the scheme.

Loans are available from £1,000 to £1m, repayable over 10 years. Businesses should approach their bank directly to see if they are eligible.

The EFG makes it easier for eligible small businesses who would otherwise struggle to get credit from banks to obtain loans. Under the scheme the Government provides an accredited lender with a guarantee for 75% of the loan’s value, for which the business borrowing the money pays a premium. It is part of a range of credit easing measures the Government makes available to small businesses which lack ready access to capital markets. The Government has committed to guaranteeing £2 billion in loans over the four years to April 2015.

Companies can use the EFG to access new loans, refinance existing loans, convert overdrafts into loans, gain a new overdraft or extend a current one and cover cash flow shortages. It is available to all sectors of the economy except the coal industry. However, there are some partial restrictions on agriculture, financial, education, forestry, insurance and transport sectors.

A full guide to EFG can be found on the Department for Business, Innovation and skills (BIS) website.

Work Place Pension Changes

What is required? As an employer you will have to automatically enrol your staff onto a qualifying pension scheme and pay minimum contributions for all staff that are not already in a qualifying scheme and are:

• Aged at least 22 and under state pension age who earn more than £7,475 in a year. • Aged at least 16 and under age 75 who earn more than £5,035 in a year and ask to be enrolled. • Aged at least 16 and under age 75 who earn less than £5,035 in a year and ask to be enrolled. However you don’t need to pay contributions for them. • Working in the UK.

What employers must do by Law You must let your staff know in writing that they are being enrolled into a workplace pension. When staff will be enrolled depends on the size of the company. Large companies will have to start as of October 2012. Other employers will follow sometime after this, over several years. Each employer will receive a letter from the Pensions Regulator giving you the date when the new law applies to your company (also known as your staging date). Your staging date will be dependent on the number of employees on your PAYE scheme. Later in 2012 the Department for Works and Pensions will publish an implementation (staging) plan for all employers which will give you an indication of your staging date.

As an employer you must inform your staff in writing: • the date of there enrolment • the pension scheme they will be enrolled into • how much will go into their pension (as a percentage of salary or as an amount) • how they can opt out of the pension, if they want to (you must explain this in writing). If you already provide a workplace pension to staff, you must confirm in writing that the pension meets the government’s new standards.

Contributions The total contribution to the workplace pension is made up of an employee contribution, the UK government tax relief on the employee element and the rest of the contribution is by the employer.

Minimum that has to be contributed in total The government has set a minimum percentage that has to be contributed into the workplace pension in total. It is made up of your contribution, your employee’s contribution and the tax relief, added together. The minimum will start at 2% (1% by employer) and increase to 8% (3% by employer) over the next few years.

These minimum percentages do not apply to all of the salary. They apply to what is earned over a minimum amount (currently £5,035) up to a maximum limit (currently £33,540). This is sometimes called ‘qualifying earnings’. So for example, for someone who earns £18,000 a year, the minimum percentages are calculated on the difference between £18,000 and £5,035, which is £12,965. Another employee who has a gross salary of £50,000 will only have contributions based on £28,505 (£33,540 less £5,035).

Contribute more than the minimum As an employer you can choose to pay more into the workplace pension than the minimum required. If so, the employee can reduce their own contribution. But the overall contribution must still meet at least the minimum level set by the government. The employee can also choose to increase their contribution. In all cases the minimum percentages are fixed.