East of England-based accountants Moore Thompson is encouraging people using the Seed Enterprise Investment Scheme (SEIS) to check the credentials of start-ups before investing in them.
The SEIS was created to encourage individuals and other businesses to invest in new enterprise and entrepreneurship in return for tax incentives.
Under the scheme, individuals can invest a maximum of £100,000 in a single tax year, which can be spread over a number of companies.
In return they can receive up to 50 per cent tax relief in the tax year the investment is made, regardless of their marginal rate.
Investors also benefit from 100 per cent capital gains tax relief on the growth of the value of SEIS shares and loss relief should the SEIS start-up fail.
However, investors are being warned by Moore Thompson to avoid businesses that lack advance approval from HM Revenue & Customs (HMRC).
HMRC runs a pre-approval service that looks at tax compliance for SEIS companies and investigates a business’s share structure, qualifying trade and how money raised from SEIS will be spent.
Once granted by HMRC, investors can then trust that the company will deliver the promised tax breaks – providing the rules are not broken during the 36 month investment term.
However, pre-approval is not compulsory and many start-ups fail to submit their plans to HMRC, leaving investors at risk of not receiving the benefits promised if the SEIS rules are not met by the start-up company.
Mark Hildred, Managing Partner at Moore Thompson, said: “Investors taking advantage of the tax arrangements surrounding the SEIS need to be careful when investing their money.
“Not all firms have been vetted by HMRC and those that have not, may be unable to provide the tax benefits promised under the scheme. Checking they have HMRC’s seal of approval is vital to guarantee the success of your investment.”
Mark also added that businesses seeking investment through the scheme should apply for accreditation from HMRC. He said: “While pre-approval is not compulsory, completing the process could give investors more confidence to invest in your business.
“The process to be granted approval can be somewhat time-consuming, but the benefits could be massive and with the right professional help a lot of the burden can be taken away.”
If you would like to know more about the benefits of SEIS or any other Government-backed tax incentivised investment scheme, please contact Moore Thompson by calling 01775 711333.