Pratik Sampat (CEO of ihorizon) explains the implications of the Chancellor’s latest budget for start-ups and small businesses.
Your start-up begins its life as a bootstrapped entity and quickly develops its business plan and funding requirements. £150,000 is identified as being required to fund the next stage of development.
It is here that SEIS (PDF) earns its praise as the best tax incentive ever introduced by the UK Government. You can raise up to £150,000 through the scheme once it is qualified for SEIS, and the qualification process is very straightforward.
The benefit to your angel investors is that if they invest £50,ooo they will receive 50 per cent income tax relief on the amount invested. Therefore, if your angel investor in this example pays tax of over £25,ooo via PAYE or self-assessment over the current and preceding year and decides to invest £50,000 in your business, they will receive upfront relief of £25,000.
Thus, if the tax is already paid, a cheque will be issued to them by HMRC. (This is the simple case: if they happen to have a capital gain upon which tax is owed as well, they can invest this and get another 28 per cent relief – i.e., 78 per cent in total. The £50,000 investment would thus cost them £11,000 – and if they hold it for 3 years, they won’t pay tax on the exit. In the business this is known as a no-brainer.)
Your start-up thus now has a better chance of getting the money it needs to hire developers, create its product and market itself.
Courtesy of Kernelmag