What is Start-Up Crowdfunding:
Start-up crowdfunding is a process through which a business can raise small amounts of money from a large number of people using the internet. The objective is to raise sufficient funds in order to carry out a specific project. In Europe there is no limit to the amount of raise or the amount a backer can invest.
Equity Crowd Funding is also synonymous with Start-Up Crowdfunding. It’s a cost-effective way for new companies to raise funds, and an easy way for the investor to support a business and participate in potential future growth.
UK Crowdfunding Regulation is less restricted than the US
The UK regulations for crowdfunding is less restrictive than the US and has seen far greater growth over the past 5 years. The UK does not provide restrictions or a cap on the total amount any backer can invest in a company. There are no limits to the amount an issuer can raise in any given year.
Under the SEIS and EIS there are tax incentives for European small business investors eliminating the capital gains tax. US Investors pay the same capital gains taxes as for any other investment. (see your tax professional for specific details).
In the US, crowdfunding is currently restricted to $1,070,000 annually per company, which the SEC announce will be raised to $5M in 2021 See Here >. A backer can invest up to $2,000 or 5 percent of their annual income, whichever is greater if they make less than $100,000 per year. If a backer makes between $100,000 and $200,000 a year, the cap is up to 10% of their annual income.
The US requires additional requirements for companies by requiring an annual accounting audit if the raise of $500K.
The EIS and SEIS Tax Relief Programs for UK Taxpayers
The HMRC (Her Majesty’s Revenue and Customs) created two programs to stimulate growth of companies and start-ups. For qualifying early-stage and growth-targeted businesses.
EIS is the Enterprise Investment Scheme (EIS) created to stimulate investment in qualifying start-ups and early-stage companies. Investors receive up to 30% of their investment back in their taxes as relief. Investors can defer up to 50% of Capital Gains Tax. Loss relief can be used to apply against Capital Gains Tax or income tax.
SEIS
The Seed Enterprise Investment Scheme (SEIS)
SEIS was created to provide new seed-stage company investing through income tax relief to individuals at a rate of 50% of the value of their investment, with a maximum amount of £100,000 in investments per tax year. There is also up to a 50% Capital Tax Gains Relief up to £50,000 on shares that are reinvested into EIS eligible shares. Also, any gains may be exempt from Capital Gains Tax if shares are held for 3 years. There is a “Loss Relief” if shares fail in a company.