Small Talk: Why the seed enterprise scheme fell on stony ground for the Treasury
Sometimes, you can't even give your money away. That must be the feeling among those ministers who have had a hand in the Seed Enterprise Investment Scheme.
The SEIS is an initiative designed to get much-needed funding into start-up businesses that has so far failed to take off despite offering hugely generous tax reliefs. In fact, for some investors, the scheme is entirely risk-free thanks to the giveaways on offer from the Treasury. Yet the take-up rate is disappointingly low.
So much so that the Department for Business has felt compelled to intervene to try to improve awareness of the scheme. In September, Lord Young, its enterprise tsar, asked the former Dragons' Den panellist Doug Richard to help promote the SEIS. He's since held a series of roadshows to highlight its attractions, including a bash at the London Stock Exchange earlier this month that was co-hosted by Business and Enterprise Minister Michael Fallon.
You certainly can't fault the generosity of the scheme. Invest in a SEIS-eligible start-up and you'll immediately qualify for upfront tax relief of 50 per cent. Hand over £1,000, in other words, and you can claim £500 of it back via your tax return.
In addition, as long as you hold on to your investment for at least three years, there is no tax to pay on any profits you make when you do sell up. If the investment is loss making, you can claim loss relief at 20 per cent, assuming you're a higher rate taxpayer (or 22.5 per cent if you're on the very top rate). That's effectively worth another £200 back of your original investment: so, thanks to tax breaks, you can afford to see your £1,000 SEIS investment fall in value to £300 before you're losing any real money.
Even better, in the 2012-13 tax year, if you have profits from another investment on which capital gains tax is due, the bill will be written off if you invest them in a SEIS-eligible firm. The CGT rate is 28 per cent, so that's another £280 of tax relief on a £1,000 investment. For some investors, then, just £20 of that starting stake would be at risk (or none at all for taxpayers on the absolute top rate of tax, 45 per cent, who get that 22.5 per cent loss relief).
So why isn't the SEIS more popular? Well, one reason, say some business angel groups is that the maximum investment of £150,000 is too low for investors and businesses raising money. Another reason may be that the minimum investments are generally too high, ruling out all but high-net-worth investors, though crowd funding sites such as Seedrs, which allow investors to build portfolios of small stakes in such businesses, may help with that.
Seedrs, not surprisingly, is now pushing the SEIS hard. It is self-interest, of course, but someone has to sell this. For despite the efforts of Lord Young, the biggest problem for the SEIS is so few people know about it. A scheme offering tax reliefs that offers investors an almost risk-free punt on start-ups (or totally risk-free for 45 per cent taxpayers this year) appears to have passed most investors by.
Why has the Treasury been so coy about its largesse? One reason may be nervousness about being seen to shout about what might be described as a tax-avoidance scheme. The less cynical explanation is simply that the Treasury has never done much to promote the tax incentives it offers and doesn't know how to do so.
Either way, it's a crying shame so few people know about the SEIS. It doesn't suit every investor but far greater numbers should be taking an interest.
Rise in standards could help LiDCO
LiDCO Group, the specialist medical device business, could be on the verge of a major success with one of its devices. The National Institute for Health and Clinical Excellence (Nice) has just announced higher standards of monitoring for patients who undergo general anaesthetics and are judged to be at risk.
Its recommendations include using a device incorporated in LiDCO's monitoring products.
House broker FinnCap, which has a target price of 23p for the stock – the company currently trades at 13.5p – says much depends on how quickly Nice's proposals are implemented. But it said the recommendation can only increase the uptake of LiDCO's monitor.
Small firms are urging Osborne to focus on them
A further overhaul of the banking sector, new reliefs on national insurance contributions and tax simplification should be the Chancellor's Autumn Statement priorities, the Federation of Small Business will say today.
The federation will call on George Osborne to put "small businesses at the heart of reforms" when he makes his statement in 10 days' time.
John Walker, chairman of the federation, said the Government had yet to deliver the competition necessary in the banking sector for SMEs' access to finance to improve. He will urge Mr Osborne to launch a Small Business Bank to promote and protect SMEs.
Small Businessman of the Week: Nick Moore, managing director, We Trade It
We describe ourselves as an online business-to-business community: we provide a forum where start-ups and SMEs (small and medium-sized enterprises) can trade with each other, but also just connect and share experiences. All of the people involved in launching our site have run their own businesses before, so we know how tough it can be for start-ups to find support.
"Any business on the site can buy and sell products by trading with other businesses on the site, but it's effectively a bartering system – the businesses trade with each other using points rather than cash. We allow members to cash in their points at any time they want, because we know cash is king, but trading in this way allows a small business to conserve its cashflow, which can be really crucial for a start-up. We're also giving them an online shop window – that's vital since these companies just don't have the budget for the sort of e-commerce operations that big businesses routinely use.
"We launched this site in September and we're really pleased with how it's going so far – we've got 720 members from a very wide variety of business sectors already and next year we plan to really ramp up our activities."
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