ACCA Advanced Taxation (ATX) Practice Exam

Which of the following would be a valid reason for an investor to pursue SEIS?

1. To acquire large shares in public companies

2. To support high-growth potential small businesses

3. To evade taxes on overseas investments

4. To invest in real estate properties

The correct answer is: To support high-growth potential small businesses

Pursuing the Seed Enterprise Investment Scheme (SEIS) is primarily motivated by the desire to support high-growth potential small businesses. SEIS is designed to encourage investment in startups and smaller companies by offering significant tax relief incentives to investors. The scheme allows investors to claim tax relief on investments made in qualifying startups, thus reducing their overall tax liabilities and promoting entrepreneurial activities. This aligns perfectly with the objectives of SEIS, which are to stimulate new businesses and foster innovation in the economy. Investing in small businesses through SEIS not only presents an opportunity for potential financial returns from high-growth companies but also aligns the investor with the broader goal of nurturing the startup ecosystem. This type of investment is inherently riskier but comes with incentives that can substantially offset these risks. In contrast, pursuing large shares in public companies, evading taxes on overseas investments, or investing in real estate properties does not align with the objectives of SEIS. The scheme specifically targets smaller, high-potential businesses and aims to encourage domestic growth, rather than focusing on larger established entities or asset classes unrelated to business innovation.