A new study has found that most potential investors in small businesses projects are completely unaware that they can take advantage of a range of Government-backed tax relief schemes.
The research, conducted by YouGov on behalf of crowdfunding platform Crowdcube, found that a mere 13% of individuals who invest in the stockmarket had even heard of the Enterprise Investment Scheme (EIS), or the The Seed Enterprise Investment Scheme.
The findings back up the results of a Baker Tilly study conducted earlier this year, which found that only a small percentage of business owners were making the most of the available Government-backed tax incentives.
What Government tax reliefs are available to would-be investors?
The main schemes include:
- The EIS, which provides income tax relief of 30% on investments up to £1m in non-quoted companies. Keep the investment for three years, and you won’t pay capital gains on any proceeds.
- The SEIS, which was launched in 2012, provides 50% income tax relief on seed investment in early-stage companies (higher risk than EIS). Maximum investment is £100,000. No CGT after three years.
- Venture Capital Trusts (VCTs) – you can invest in a range of early-stage companies. 30% tax relief, maximum £200,000 investment.
Tax relief is also available via the Capital Allowances scheme, the Patent Box, and R&D Tax Credits. Find out more in our guide to Government tax credits.
The rise of crowdfunding
Commenting on this widespread lack of awareness, Luke Lang, co-founder of Crowdcube, said: “More needs to be done to make people aware of potential tax relief on their investments to boost British small business,” especially given the recent surge in in interest in ‘alternative’ investment options, such as crowdfunding.
As the name suggests, crowdfunding enables people to pool their resources to invest in a business or project. This type of funding is particularly popular for businesses who are unable to secure funding from more ‘traditional’ sources.
You will typically invest in crowdfunded ventures in one of two ways:
1) Debt (peer-to-peer lending), where you lend money which is paid back over time, plus interest.
2) Equity, where you provide capital to a business, in exchange for shares in the enterprise.
Earlier this year, the Financial Conduct Authority (FCA) introduced new rules to protect novice investors in crowdfunded projects.