The funding 'secret' with big tax breaks
With pleas for bank funding still receiving a lukewarm response, small businesses needing to raise cash are being urged to look at a little-known Government scheme that offers tax breaks to potential investors.
It is usually used for higher-risk
ventures and offers potential investors a range of tax reliefs on money they
invest in small and medium firms, including various levels of income tax, capital gains tax and inheritance tax relief if they
maintain their investment for certain periods.
About £6bn has been invested in more than
20,000 companies, with investments averaging about £250,000.
Yet the EIS has a relatively low profile
among financiers and business owners.
Tony Good is a serial investor and EIS
enthusiast and sits on the board of five EIS-funded companies.
Tony, 76, who lives in Wootton Rivers, just
outside Marlborough, Wiltshire, says: 'I know bank managers who have looked
completely blank when you talk to them about the scheme. So for me there is
definitely a public relations job that needs to be done.'
One problem could be the com-plexity of the
scheme. Firms must apply to Revenue & Customs to check whether they
qualify.
There are many rules, such as a requirement
that businesses must have assets worth no more than £7m, employ a maximum of 50
staff and be looking to raise a maximum of £2m in a 12-month period. There are
also limits on the size of the stake that investors can take.
But if eligible, it can make an enterprise
much more attractive to would-be investors, according to Martin Sherwood, head
of tax at London investment management firm Smith & Williamson and director
of the EIS Association.
'A lot of small businesses when they are
looking for funding will sound out friends, family or contacts,' he says.
'If you can say you have been given
clearance by Revenue & Customs to say that anyone who invests in your
business will be able to attract tax relief, that is clearly going to make you
a more attractive proposition.'
Silversmith Simon Benney used the EIS to
attract investors when setting up his upmarket company Benney Watches, where
Tony Good, his neighbour, is chairman.
The company, which started trading last
April, now has 14 investors who between them have put about £250,000 into the
business, which is based in Pewsey, Wiltshire, and also has a showroom in
Knightsbridge, west London.
'I was interested in watches and thought
the best way to explore this was to set up a separate business devoted solely
to them,' says Benney, 43, who has also designed silverware for the House of
Commons and the Royal Family.
'Tony suggested getting access to finance
through the EIS because the tax advantages were incredible. It has been a big
factor in helping me raise the money to get started.'
But he adds: 'There can be a lot of
paperwork and it is possible to be dropped from it if you breach the rules, so
it is worth appointing a company secretary or accountant who is familiar with
the scheme to help you apply.'
For more details, visit the Revenue & Customs
website at hmrc.gov.uk/eis/index.htm
Back to News
