Is There an Entrepreneur in You?
Reasons to be cheerful – Entrepreneurship in 2020
While for many 2020 will be written off as a lost year due to the disruption and economic fallout from the pandemic, the year ahead may well present a silver lining for those who can choose to seize the day. Many people have lost their jobs and it is predicted that unemployment figures will continue to rise over the coming months. However, for those affected, this could present a unique opportunity to follow through on their dreams, become an entrepreneur and start a new business.
Not underestimating the impact being made redundant can have, this experience can give some individuals the impetus to find their inner entrepreneur. This is supported by research from AXA, which shows that almost a third of businesses founded in the UK between 2011-16 were by people who were unemployed or who had been made redundant. Additionally, recessions are historically a great time to start new businesses and Airbnb and Uber are just two such examples of household businesses which were formed in 2008 during the depths of the financial crisis.
SEIS and EIS Incentives for Private Backers
The UK actively encourages innovation and the backing of new company activity due to the large tax incentives offered by the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). This means that it is easier than ever to raise startup equity funding to get your new business going. Since its introduction in 1993 more than 30,000 companies have received £22bn of EIS funds, while SEIS (rolled out in 2012) has raised more than £1bn for around 12,0000 companies.
The SEIS scheme allows qualifying companies to raise up to £150,000, with private backers receiving up to 50% of their investment in the form of income tax relief. Additionally, they are able to benefit from capital gains exemptions if funds are reinvested into SEIS investments, alongside being able to claim loss relief if funds are lost on an investment. Correspondingly, EIS companies can raise up to £5m of funds, with backers benefiting from 30% income tax relief, alongside similar capitals gains tax deferrals and loss relief.
It’s Not Just Tech Companies that Qualify
Appropriately you don’t have to be a tech company for your investors to qualify for the tax relief. Many different types of business qualify – the incentive is there to recognise that there is risk in backing startups. Make sure you know if your business idea would meet the relevant criteria and make no assumptions either way. Be sure!
The pandemic has accelerated many changes in our economy (i.e. our propensity to buy online and work remotely). If you have a burning passion to create the next great business of tomorrow, this may well be the perfect time to do it.