Why the UK Is Ripe for Startup Funding

September 23, 2016

11:40 am

Brexit has significantly rocked the British economy. Yet, after the initial shock wave has passed and the legislators are now navigating their way through all the possible post-Brexit scenarios, the UK startup community has recovered pretty quickly.

According to the most recent data from an investment database Pitchbook for London & Partners, UK tech companies have received over $200 million of funding across 42 deals since the notorious referendum. In fact, just last month Twitter purchased a UK startup for a whooping $150 million.

Top European investors like Index Ventures and Local Globe also claim that they will continue to invest in the London Tech hub. So, why do the global startup community and the savvy local entrepreneurs not feel reluctant to invest after Brexit?

Lucrative Government Tax Benefits For Foreign Investors

Whether the UK is part of the EU or not, its local tax system will not change, meaning the two most established tax relief schemes – SEIS and EIS – remain valid. And both angel investors, syndicates and VC firms are eligible to claim those benefits.

The SEIS scheme allows investors to place a maximum of £100,000 per annum in start-up businesses and receive 50% tax relief. If the investors choose to sell their stocks in 3 years, all the profits would be free from Capital Gains Tax.

The EIS scheme encourages investment in small high-risk trading companies. Investors can claim 30% tax relief up to a maximum of £1 million per year. Shares held for a period of at least 3 years will be free from capital gains tax was sold.

Additionally, don’t forget about the R&D Tax Credits initiative. It was launched to encourage R&D activities in the UK and £2.45bn per annum is currently being claimed. The R&D tax relief scheme allows profit-making SMEs to receive up to 26% rebate on development costs and loss-making SMEs can receive up to 33.35% in cash rebates.

Obtaining Living Permits Will Remain Simple

Currently, EU nationals can work and live in the UK without obtaining any additional permits. However, Brexit is forcing the country to renegotiate this agreement. Yet, investors and entrepreneurs, who are already settled within the country or plan to do so in the near future, should not fret.

Currently, all non-EU nationals are eligible to obtain the so-called Entrepreneur Visa, which allows the holder to live and operate their company within the UK for at least 3 years. However, there are some requirements to be met – e.g. having a disposable investment capital of at least £50,000 and being willing to complete and file some additional paperwork.

 The Government Startup Funding Initiatives Are Staying Put

Sure, the European Horizon 2020 program funding has uncertain perspectives for British companies, yet local governmental initiatives won’t get cut post-Brexit.

Right now, there are 238 governmental grants listed in the official directory which small businesses can apply for based on the required eligibility criteria.

Additionally, don’t forget about the £3.2 billion in regional growth funding such as the Catalyst for Growth program, which allows you to receive direct grants ranging from £5,000 to £500,000 for chemical startups launched in the North West of England. A quick Google search will quickly reveal additional options available for your niche and in your area.

Soft loans are another affordable funding route you may want to consider. A soft loan is a special type of grant with less burdening repayment terms and conditions, compared to those offered by traditional financial institutions like banks. The interest rates may be much lower or there may be no interest rates to pay at all.

The most notable government-funded scheme, in this case, is Start Up Loans, which grants business loans up to £25,000 for 6% interest with a 12-month repayment “holiday”.

If you are interested in pursuing a social enterprise or charity, you can take advantage of the schemes offered by the Big Issue Investment company. The firm offers soft loans starting from £50,000, up to £1 million. They also operate “participation loans” where the repayment is linked to the future performance of the company.

Millennial entrepreneurs (aged between 18-30) can take advantage of the soft loans offered by The Prince’s Trust, along with the additional support of your business idea through mentorship and the interest rate capped at just 3%. These repayments can be spread over two to five years.

For the UK startup eco-system the current climate certainly looks like there is still life after Brexit – and quite an exciting one!

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Dianna is a former ESL teacher and World Teach volunteer, currently living in France. She's slightly addicted to apps and viral media trends and helps different companies with product localization and content strategies. You can tweet her at @dilabrien

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