ACCA Advanced Taxation (ATX) Practice Exam

SEIS relief specifically encourages investment in which type of business?

1. Non-profit organizations

2. Established multinational corporations

3. Newly-formed small enterprises

4. Publicly traded companies

The correct answer is: Newly-formed small enterprises

SEIS, or Seed Enterprise Investment Scheme, is a UK government initiative aimed at promoting investment in early-stage businesses. The scheme specifically encourages financial support for newly-formed small enterprises by providing tax relief to investors. This support is crucial for startups as it helps them secure funding at a critical stage in their growth when accessing traditional financing options can be challenging. Investors who back these qualifying enterprises can benefit from significant tax incentives, including income tax relief and capital gains tax exemptions, which makes investing in such businesses more attractive. SEIS is particularly focused on small, high-risk companies, often in their first few years of operation, which aligns with the objective of fostering entrepreneurship and innovation within the UK economy. In contrast, non-profit organizations typically do not seek equity investment in the same way; established multinational corporations have access to capital through other means and are typically past the early-stage growth phase; and publicly traded companies are generally beyond the scope of SEIS intended for nascent startups. Thus, the emphasis on newly-formed small enterprises as the target for SEIS relief aligns perfectly with the objectives of the scheme.