September’s mini-Budget delivered a boost for investors. Despite the new Chancellor throwing out much of his predecessor’s changes, there could still be opportunities for your business to benefit
This column has been updated for an earlier version, written and published before Jeremy Hunt was instated as Chancellor of the Exchequer.
While the press focus has been on how Chancellor Jeremy Hunt has torn up Kwasi Kwarteng’s mini-Budget, there may be good reasons for businesses to be cheerful that some of the new financial rules look set to remain.
While Kwarteng came under fire for giving tax cuts to the UK’s highest earners, and as the level of corporation tax is set to rise to 25p, at Swoop we wanted to go behind the headlines and find out where the best opportunities for SMEs were, and how to take advantage of them.
It turns out that the mini-Budget introduced a couple of nice surprises that, for some businesses, will make the next financial year less painful than founders may have been anticipating.
The big news for SMEs is the SEIS expansion
SEIS and EIS are tax breaks that encourage investors to finance SMEs.
Something like 80 percent of all early-stage investment is SEIS or EIS investment, from angel investors and SEIS/EIS funds. Investors receive a hefty tax deduction on their investments, and no capital gains tax if (when) they sell their shares at a later date.
Under the new rules, companies which could once raise £150,000 in SEIS can now raise £250,000. The scheme has also been expanded from two years to three.
Criteria around business size has also been raised, so that while companies once had to have less than £200,000 in gross assets, that number is now £350,000.
Kwarteng introduced the new levels for investment and Hunt looks likely to keep them.
In short, the new rules are pushing for more money to be invested in more early stage businesses than was previously possible.
Some business owners do not want to give up a share of the ownership. Does this mean there is a shift in focus from borrowing to selling equity?
The answer isn’t straightforward. With interest rates rising, borrowing is likely to become more expensive. Business rates on loan products have always been well above the base rate, but with news that some banks have temporarily held off signing off more mortgages until the interest rate fluctuations settle down, many will think borrowing is off the table.
This is not the case, but customers will have to do their research to ensure they are getting a good deal. There are still competitive loans and other borrowing products out there – if you look.
The rule change does mean that businesses which were not previously eligible to get SEIS funding may be able to do so. They may also be able to raise more money than previously possible. And so, if you have a funding need, you may have to make a decision about whether you borrow or set your stall out for investors.
Swoop has long argued that SMEs are the backbone of the economy, and it is good to see that the government has given us some reassurance and tools to grow, even at this time of economic difficulty.
Swoop is keeping up to date with changes in the rules as they happen – and just now, there is uncertainty over which rules are here to stay and which will change.
Swoop has created a page to help all businesses through the coming months: CLICK HERE TO READ “How to Survive a Recession”.
