# Seed Capital, is it worth it?



## bobharris (13 Jan 2010)

So I qualified for the seed capital scheme.  I had €100k euro to invest in the business.  This was going to get me €30k in tax refund.  Happy days.  

Now my accountant and another I talked to for a second opinion said it simply wasn't worth it.  Their reasoning was I would be tying up €70k in the business and wouldn't be able to get it out.  I reckon I could pull it out at the standard rate and if the business was making so much money that it had to come out at the higher rate well that was a great result all around.  Their opinion was the seed capital scheme was really only for businesses that needed the capital to purchase equipment or businesses that required a certain amount of capital, eg a franchise.

I'm not going to go against the advice of 2 accountants based on the wisdom of the members of this forum, my business partner wouldn't let me do that.  Just wondering what people think.  I feel like I'm walking away from €30k.


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## patftrears (13 Jan 2010)

You should have rough forecasts for the first 5 years of the business.
That should tell you if it's worth it.

Their theory is correct if you don't need that much startup cash. To enable you to earn a good wage from the business. Then it is not the best option.

You could always invest 50k.


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## adrian.s (15 Jan 2010)

There's one other little trick with the seed capital scheme which caught me by surprise a little is that you have to take out a full time employment contract with your company. So if you have work with another employer (even on a part time basis) you have to finish it. 

Mightn't be an issue for you, but worth noting if you were paye employed elsewhere as a means of financing your company.

Adrian.


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## amgd28 (15 Jan 2010)

Seed capital scheme is a bit of a nonsense to be honest. Just invest your cash as a loan into the company and simply withdraw a monthly stipend as a repayment with no income tax liable. In due course as revenue picks up you can pay yourself some PAYE salary, and top it up with loan repayments.


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## censuspro (15 Jan 2010)

The problem with Seed Capital is that you have to invest in the copmany via share capital i.e. you have to buy shares in the company.

You should never make decisions based on tax implications, it also has to make good commercial sense. In your case does it make sense to put €70K into a business that you wont be able to touch for the sake of €30K tax relief?

You could potentially get you investment back over 2 years if you paid yourself a salary under the income tax treshold of 20% but that would also depend on your personal circumstances and other sources if income you might have.


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## adrian.s (15 Jan 2010)

amgd28 said:


> Seed capital scheme is a bit of a nonsense to be honest. Just invest your cash as a loan into the company and simply withdraw a monthly stipend as a repayment with no income tax liable. In due course as revenue picks up you can pay yourself some PAYE salary, and top it up with loan repayments.



I would not describe it as being nonsense, it depends on your need for the cash! To me it was pretty invaluable being able to get additional cash for a business that has a high burn rate at the start. Being eligible for seed capital means that the company satisfies certain criteria and if you ever read these criteria you will see they do take a nice chunk of cash to get off the ground initially. 

If the 100k into the business isn't going to be paid back to you in salary and is required for other purposes, then it's probably a good scheme since the 30k refund comes directly to you and you could live off that for a bit. If however you're putting it in, to draw it back for yourself, then that's a different story.

A.


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## thinkbiz (15 Jan 2010)

Well sincerely it all depends on two things seriously

1) what is the return you are getting from SCS eg in your case its 30%
2) what do you need the money (investment) for.

In my case the return is over 40% and I need the money for my business so the tax refund would play a critical role for me. If you are afraid that your money will be stuck, then thats a very genuine concern. However again, there are many ways to take out that money, through business expenses and salary. 
What I would advise you is that in your excel sheet if you end up with a profit of over euro 5000, its worth the hassle.


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## manninp2 (23 Jan 2013)

Question, say you paid €100k over 6 years in PAYE and now you were starting your own business.

Could you not take a loan for €100k from the bank, invest it into the company, claim the PAYE refund and clear the loan.

You'd end up with €100k sitting in the company account that you didn't have before.


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## mandelbrot (23 Jan 2013)

manninp2 said:


> Question, say you paid €100k over 6 years in PAYE and now you were starting your own business.
> 
> Could you not take a loan for €100k from the bank, invest it into the company, claim the PAYE refund and clear the loan.
> 
> You'd end up with €100k sitting in the company account that you didn't have before.



Your sums don't add up there - you can claim a relief by way of a deduction from total income. So lets say your income was 75k in each of the last 6 years, and you were paying about 20k in income tax p.a.

When you invest the 100k into the company you can go back and pick a year or years to use that 100k deduction against.

So 75k of it gets used up in the first year you select to claim for, reducing your income to Nil, and you get a refund of all your tax paid (20k). That leaves you 25k to deduct from another year's income, reducing it to 50k and resulting in a refund of 10,250 (25k x 41% - as this is the rate you'd have been paying tax on the 25k at).

So your 100k investment gets you 30,250 of a tax rebate, which you'll see is what a previous poster stated their relief was worth to them.

So in your scenario, you can borrow 100k and put it in, but you're only going to get 30k of it back from the taxman; you'll need the business to succeed to get the other 70k back to give the bank.


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## manninp2 (24 Jan 2013)

Assuming it's a brand new company with no other assets etc.

Could you pay the 30K from the Revenue to the bank and have the company pay 70k back to the bank. Leaving no outstanding loan and 30k in the company?


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