I have recently been made unemployed and now wish to set up my own business. A friend of mine has mentioned to me that I may now be in a position to claim Seed Capital relief, as a result of this. Can you please outline the availability of Seed Capital relief to me?
Firstly, I would like to applaud your entrepreneurial spirit and wish you every success in your future endeavours. The Seed Capital Scheme (SCS), in conjunction with its associated scheme, the Employment and Investment Incentive (EII), are tax relief incentive schemes. The EII scheme, which was discussed in detail in a previous article, provides tax relief for investment in certain corporate trades. The SCS however provides for a refund of tax already paid by a specific individual when all qualifying conditions are met with regards to their investment in a qualifying company. The SCS is therefore designed for those who are/were in PAYE employment and who now wish to invest in a qualifying enterprise.
In order to qualify for this scheme, the activities carried on by the qualifying company must constitute a qualifying new venture. The shares in the qualifying company must continue to be held for a period of 3 years and throughout this period the individual, claiming the relief, must possess at least 15% of the issued ordinary share capital of the company. The money invested must also directly contribute to the creation or maintenance of employment. Finally, the individual must take up a relevant employment with the company within the year of assessment in which the investment is made.
Relief under SCS is claimed in respect of the investment made in the qualifying company, subject to a maximum investment of €100,000 in any year of assessment. The tax years for which you claim refunds can be selected from any or all of the 6 tax years prior to investment.
Importantly, relief must be claimed up to the extent of your total income in the selected years and is restricted to the amount of tax paid in those years. The available refund can be claimed as soon as the company starts trading or has spent 30% of the investment on R&D into relevant trading activities.
As stated above, the company must be a qualifying new venture. This means the company must be unquoted, incorporated and resident in the State or anEEAStatefor the 3 year period. The company must also carry out a qualifying trade. These include but are not limited to, the manufacture of goods, certain tourist traffic undertakings, internationally traded services, certain horticultural activity, commercial R&D and recycling activities.
Also, in order to prevent the abuse of this scheme, qualifying individuals must not in the 12 months prior to investment, have held (or be entitled to) more than 15% of shares, share capital and loan capital or voting power in another company.
From the above, you can see there are a number of conditions which must be satisfied before an individual will qualify for relief under the Seed Capital scheme. If you are still unsure as to the availability of this relief to you, please contact RDA Accountants’ Tax manager George Skelton CTA, ACA, at our Wexford office for further assistance.