No Christmas presents from you then, George!

The recent Autumn Statement delivered by the Chancellor on 29 November 2011 was vague, meaningless and now mostly forgotten. Economic growth was non-existent and the decline continues. To detract from his hopeless position George’s friend St. David is lecturing the world on Christian morality. It is the oldest PR trick in the book.

Enterprise Britain does not forget and continues to fight for the empowerment of Britain’s brave business owners, managers and workers.

It was with interest that we noted three measures to help SMEs. Two were irrelevant and the one that did take our interest was the ‘Seed Enterprise Investment Scheme’ (“SEIS”). George could hardly contain his excitement at this ‘Dragon’s Den finance’. There is a clause in the HM Revenue & Customs proposals which show this to be utterly misleading.

Before revealing George’s hypocrisy let’s examine the detail. The full facts will not be known until the Finance Bill 2012 is enacted. However it is a fairly reasonable bet that the following are the main points:

  1. A qualifying company (UK based, not property or financial services) may raise £150,000 once only.
  2. It must have net assets of less than £200,000 and employ less than 25 people.
  3. The company must be less than two years old: it can be a new company.
  4. The maximum investment per individual is £100,000. The shares must be held for three years.
  5. The investor receives income tax relief of 50% and a Capital Gains Tax (“CGT”) allowance of up to 28%. All share gains and dividends are tax free.

Therefore a high earning investor with CGT claims will pay a net £2,200 for an investment of £10,000. It is an extraordinary proposal.

However the following questions have proved difficult to answer:

  1. Will SMEs receive appropriate advice and who will pay the bills?
  2. Who advises the SME on the value of their business? What percentage of the company will £150,000 ‘buy’?
  3. If the company fails to keep to the rules investors may lose their reliefs and be forced to pay the money back. Do company directors understand these risks?

Enterprise Britain wants this scheme to be a success and hopes that answers can be found to these questions.

But what does George really think?

In the small print is the following statement:

“It is estimated that 300 or more companies will benefit from investment under the scheme in its first year.”

Thus the Chancellor is estimating that the SEIS will raise £45 million for Britain’s SMEs assuming all 300 companies raise the full £150,000. There are over four million SMEs in the UK.

Happy Christmas George.

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