Tahir's Tips: Fashion Industry Tax Reliefs
It was Benjamin Franklin who first coined the wisdom that: “In this world nothing can be said to be certain, except death and taxes.” With this in mind, this week I am going to look at how fashion start-ups and small companies can benefit from a number of tax relief schemes that the government has made available.
A number of new tax relief schemes have come into force aimed solely at the creative industries within the UK. These reliefs enable qualifying companies to claim a larger deduction in the amount of tax they have to pay (and in some cases they can claim back payable tax credits). The industries covered by these schemes include film, television, animation, video games and theatre. Unfortunately, the fashion industry is yet to benefit from such a scheme but considering how important it is to the British economy, I believe that there should be a comparable set of tax reliefs aimed at UK based fashion start-ups. Perhaps the industry should be lobbying on that front however, in the meantime, there is a set of wider ‘investment incentivising’ tax reliefs aimed at small and growing companies that fashion can benefit from. The two main ones are:
Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) is designed to help start-up or growing companies raise finance by offering a range of tax reliefs to investors. This can be particularly useful for fashion companies that are sometimes seen by investors as high-risk investments. EIS can therefore help alleviate some of the problems that fashion companies face when trying to obtain investment as those involved with the EIS scheme will be instantly more attractive to potential investors as they will be able to claim income tax relief and capital gains tax exemption on their investment.
There are various complex conditions which must be met by the company and the investor at the date of the investment and, for most conditions, for at least three years thereafter. Some of these conditions are quite complicated, but in summary; the investor cannot own more than 30% of the shares of the company, the investor must hold the shares for at least three years and the investor cannot have been previously connected with the company as an employee or paid director. The conditions that must be met by the company are equally complex but include the following: The company cannot be quoted on a public stock exchange, the company must not trade in an ‘excluded activity’ (this includes dealing in property, farming, financial activities and the operation of hotels and nursing homes), the company must have fewer than 250 full-time employees and they must have a permanent establishment in the UK.
Seed Enterprise Investment Scheme
The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies to raise money by offering a range of tax reliefs to investors. The rules largely mirror those of EIS as it is anticipated that companies may want to go on to use EIS after an initial investment under SEIS. The reliefs are more attractive under SEIS, however there are further conditions that need to be satisfied.
The conditions that must be satisfied for SEIS are broadly similar to those for EIS but in summary, those that are different include: The assets of the company must not be more than £200,000, the company must have fewer than 25 employees and when the relevant shares are issued, the trade of the company must be less than two years old.
If you have made it this far without falling asleep then well done! Taxation is never the most interesting of topics but as it is inevitable that your company will have to pay taxes it is an important one.
The thing to remember is that if your fashion business is set up so that it is EIS/SEIS compliant then it becomes more attractive to certain investors as the tax reliefs offered to them reduces the risk on their investment monies. As a result of this, small to medium sized fashion businesses that are looking for investment should absolutely consider becoming EIS/SEIS compliant as it will increase their chances of getting investment.
For more information on Industry member, Tahir visit his personal partner page on the Sheridans website. To contact him directly, visit The Industry Directory, email [email protected] or telephone 020 7079 0103.
