In order to encourage investment in smaller companies, the government launched a seed investment scheme which makes the investment in small companies a more tax beneficial investment. The project is called SEIS, which stands for seed enterprise investment schemes.
There are certain restrictions on how the investment works and what sort of tax benefit it can bring. For example, the total about of investment which qualifies for the scheme is capped at £100,000. This is the amount that can be invested in a single year and if an investor wants to put more money in, they will have to wait until the following year. Even so, the total amount of money that can be invested is limited to £150,000.
There are also limitations on what sort of companies can be invested in. There are conditions that have been set out by the government which identify what companies are regarded as small enough to qualify.
Firstly, the company must not be listed on the stock exchange. They must also employ fewer that 25 people if they want to get the investment. They must also have assets that are valued at less than £200,000. These conditions remove the vast majority of companies from the investment scheme and those that remain are likely to be small companies focusing on areas such as design or technology.
The government has made this move because they understand how important small businesses are to the recovery of the economy. They also realise that these sort of investments are higher risk and by offering tax incentives they are encouraging investors to take a risk that they might not otherwise take.
In a time when the economy is poor having this investment is essential for many small companies, as they might be unwilling, or unable, to secure finance from a bank.