11 UK start-up benefits that may make you wonder why you are still in a corporate job14 March 2015
Governments around the world have realised that start-ups are critical to socio-economic progress. The UK Government is no exception to this rule. Thus, there are a wealth of start-up benefits provided by UK Government and other organisations which will collectively mean that this is the ideal time to start your own business.
In addition, big companies around the world realise that a smart kid with a computer and an Internet connection could bring their entire business down. Hence they want to keep ahead of start-ups, understand any disruptions caused by them, work with them, and ultimately, if these start-ups are successful, either acquire them or utilise them as a key supplier or client.
Disclaimer: Tax treatment and eligibility depends on the individual circumstances of each individual and company and may be subject to change in future. Check with your advisors before making any decisions.
1. SEIS / EIS
We at CityFALCON managed to raise £150K out of our £200K seed round via the SEIS scheme. SEIS stands for the Seed Enterprise Investment Scheme, and it is designed to help small, early-stage companies raise equity finance by offering tax relief to individual investors who purchase new shares in these companies. It complements the existing Enterprise Investment Scheme (EIS) which offers tax relief to investors in higher-risk small companies. Companies could raise up to £150K under SEIS and up to £5million under EIS.
It is important to understand before signing up for this scheme exactly what regulations apply. The government has instigated this scheme in order to attempt to negate difficulties which start-ups face in attracting investment. Although this may seem a very welcome initiative, it is also important to understand that the government wants the right sort of companies to be applying and being approved.
Subject to terms and conditions, income tax relief is provided for up to 50% of the cost of any shares to investors for investment into a company approved under SEIS. Moreover, relief is also available from capital gains tax on selling of such shares. If the company goes bankrupt, investors could set off some of the losses against their taxable income. These tax benefits make investment in start-ups which comes with high risk into an excellent opportunity for average investors. Please remember that this a highly illiquid asset class.
2. R&D Tax Credit
Another potentially valuable source for start-up businesses is R&D Relief. As the name would suggest, this is a form or relief aimed at SMEs who have a research and development remit in at least some part of their overall operation. R&D Relief is a Corporation Tax relief which can reduce your company's tax bill.
Two schemes exist for claiming relief under this particular initiative, and which one you claim will depend on the size of your particular company or organisation. Both of these schemes are fairly self explanatory, with the Small or Medium-sized Enterprise (SME) Scheme naturally aimed at SMEs, while the Large Company Scheme deals with bigger companies.
Under the SME scheme, the tax relief on allowable R&D costs is 225% - that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £125 on top of the £100 spent. If you are loss making company, you could even be eligible for a cash refund. You need to read the definition of qualifying costs very closely but usually development costs which are one of major costs for a technology company is included under this definition.
3. Web Hosting Offers
Another valuable way to save money, particularly if you utilise a lot of server power as part of your business, is to sign up for one of the start-up packages provided by cloud hosting companies. Google, Amazon and Microsoft all offer schemes of this nature. We at CityFALCON got a credit of $100,000 from Google towards cloud hosting.
4. Innovate UK Grants
Innovate UK (formerly Technology Strategy Board) offers Smart Grants which range from £25,000-£250,000 to a variety of companies. There are three kinds of Smart Grants available: Proof of Market (£25k, 60% match funded), Proof of Concept (£100k, 60% match funded), Development of Prototype (£250k, 45% match funded). The type of grant that you apply for is dependent upon many characteristics of your individual company, so it is advisable to read up on all of the terms and conditions before making an application. You can find more information here. Additional guidance is available at GrantTree.
5. Start-up Incubators and Accelerators
Business incubators and accelerators run courses with the intention of enabling small businesses to grow rapidly in a short period of time. In exchange for this, such programmes may take a share of equity in the business. Typically, this works out at around 5-10% of equity in exchange for an initial seed funding which averages around £20-£30K. Accelerator programs usually last for around six months, but they can be as short as three months or as long as a year. Throughout the procedure, businesses will be offered capital, exposure and access to networks of angel investors and experienced mentors.
Some of the popular ones are:
Level39 (for FinTech companies)
Barclays TechStars (for FinTech companies)
Pi Labs (for retail companies)
6. Free Time with Professionals
Lawyers, accountants and other service providers offer free time to small businesses for pre-arranged hours. At CityFALCON, we have taken advantage of such offers on numerous occasions, and we absolutely advocate other small businesses and start-ups doing the same. These professionals expect you to be a paying client once you've gained traction or raised funds. A win-win for all!
7. eLance and Availability of Specialists
The Internet has ensured that the way we're working in the 21st century is changing rapidly. More and more people are finding that freelancing suits their needs and abilities, and this provides companies with the opportunity to hire skilled and talented individuals to carry out important work on a flexible basis. Freelancing sites such as eLance can be a rich source of efficient, specialist labour which is provided at reasonable prices. And an additional benefit of working with freelancers is the lack of bureaucracy required in order to get working.
8. Abundance of co-working space in Central London and in popular places in the UK
These services provide broadband, printer, network, and inspiration for a reasonable price. Additional, they provide individuals with an excellent way to get out of the house and to meet people, in a form which can often improve work productivity. This is now a booming industry which provides services that range from sun decks to soundproofed meeting rooms, and it is another source of savings worth exploring for all SMEs.
9. Technology and APIs
Aside from economic opportunities, many large businesses are also providing data and technology in order to allow start-ups to produce new innovations. Open sources tools are enabling the development of new technologies to be achieved faster and at a lower cost. It is surprising the extent to which technology such as APIs is available to SMEs, and this is certainly an avenue worth exploring.
10. Entrepreneurs solving hurdles for other entrepreneurs
Never underestimate the value that other entrepreneurs can offer your business. Most entrepreneurs are passionate about business; not merely their own business or the area of industry within which they are operating. It is therefore always advisable to seek out advice from other business owners, as this will allow you to tap into a vast wealth of knowledge and experience. We have highlighted some of the start-ups that were of immense help to us at CityFALCON here.
The UK government’s growth program vouchers are also of great value to small companies. This is a government programme which enables SMEs to receive a wide range of strategic business advice. When you apply for this scheme, a number of businesses will be randomly rewarded with a voucher of up to £2,000. This voucher is equal to half the cost of any advice rendered. You can read more about this initiative here.
Are you looking for more inspiration? Keep checking Finance for Founders