UK scale-ups must HMRC prove their business plans ahead of slow, hot summer – TechCrunch
News Big cuts in technology valuation in the US might make you hold your breath as a startup founder. A change in narrative may signal a slow summer ahead, and speculative investing will prove unpopular.
However, KPMG’s latest venture capital report reveals a rich environment for British startups to succeed. Scaleus raised more than £6.9 billion between January and March alone. The competition will be hot.
In response to this new environment, founders must do everything they can to make investment decisions easier for venture capitalists and angels. In the UK, HMRC’s Institutional and Seed Investment Plans (SEIS and EIS) offer one of the best ways to do this, as they offer tax-free benefits to early-stage investors, which can give them a boost to take the plunge.
However, EIS and SEIS implementations are not a simple business. In fact, about 23% failed (in some years, it was about 40%). Because the funding comes from taxpayer money, HMRC is very careful about who allows the schemes to be used.
There is no scam system intended only for those categorized as “high risk” companies. As a result, you will need to prove that your business is real, and as many forget, you will also need to provide a strategy for success.
Your business plan will be the first place HMRC looks for this guide. Here’s how to prepare it before placing an order.
Clarity is the key
If your plan includes a high outlay of capital investment, this may reduce the “risk” aspect of your business, invalidating your application for a SEIS plan.
The first step to HMRC proof of your business plan is to present everything very clearly. You must demonstrate an unmistakable ability to present market gaps and potential solutions that you may fill. This is of particular importance in the current market.
As the application requires, founders must provide “details of all business or other activities that the company is required to undertake.” There is no space to skimp on the finer details. HMRC will not be fooled. Avoid jargon, explain how your business presents a solution to a problem in a clear and calculated way, and show how you plan to make money. Use the guides.
One of the most common reasons why we see ineligible orders is “trade going on”. This refers to attempts to bypass the eligibility of the CIS, which involves a two-year age gap.
A group of Swedish founders we met wanted to expand their UK operations with an Environmental Safety Information System. Their application failed (despite our 99% success rate) because HMRC found out that the company had been operating for over two years, just under a different IP. Precisely for this reason, HMRC requires such strict business plans from applicants for EIS and SEIS.
Certain other activities can exempt you from the schemes – but not limited to banking, insurance, money lending, debt factoring, and lease-purchase financing. Make sure all bases are covered. Only clear descriptions of your revenue streams will reassure the people evaluating your application.