The Mini-Budget: What does it mean for startups?
As Kwasi Kwarteng unveiled the latest plan for the UK economy over a week ago, his mini-budget has been under heavy scrutiny. The proposed tax cuts sent a shiver through the UK economy, causing the pound to take a downturn and interest rates to go soaring.
Today he has announced reversal of the 45p tax cuts and whilst there is evident contentions around who really benefits from the proposed mini-budget, we are here to clarify what the mini-budget means for the startup ecosystem.
SEIS
The Seed Enterprise Investment Scheme is a venture-capital scheme available in the UK, which offers tax relief to investors backing early-stage startups.
SEIS outlines that investors can get a 50% tax relief on their investments up to £100k as well as a generous exemption from capital gains tax on anything profited on their SEIS shares.
In order to qualify for SEIS, the outlined criteria must be met:
- carries out a new qualifying trade
- is established in the UK
- is not trading on a recognised stock exchange at the time of the share issue
- has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
- does not control another company unless that company is a qualifying subsidiary
- has not been controlled by another company since the date of your company being incorporated
Your company and any of its subsidiaries must:
- not have gross assets over £200,000 when the shares are issued
- not be a member of a partnership
- have less than 25 full-time equivalent employees in total when the shares are issued
Kwarteng’s policy change has increased the amount that can be raised from £150k to £250k commencing April 2023. Investors will also have their personal investment limits doubled to £200k, which has been forecasted by the treasury department to assist over 20,000 more companies next year. This means startups will have greater access to capital and can spend less time searching for fundraising opportunities and focus better on business development.
EIS
The Enterprise Investment Scheme was launched in 1994 and is another venture capital scheme that can be used by early stage companies to raise capital. It also offers tax reliefs to investors backing these small companies. In a similar vein to the SEIS, companies can receive investment if they qualify for the following criteria:
- Annual gross assets do not exceed £15 million
- There are less than 250 employees at the time of application
- They have not previously applied for SEIS
Kwarteng’s policy essentially means that the EIS is extended beyond 2025, which was set to expire in April of that year. This should support and encourage investment into UK startups.
Overall the policy changes indicate a win for early stage startups in the UK looking for investment. It should allow for founders to spend a greater amount of focus towards developing the business, rather than trying to find routes to raising capital. As stated by the treasury it should allow for greater and wider access to capital that can support emerging startups as well as those looking to transition to growth-stage.
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