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If you’re reading this, you may already know what the acronyms stand for: the Seed Enterprise Investment Scheme (SEIS), and its big sister the Enterprise Investment Scheme (EIS). Read on to find out more about how you can use these schemes to attract funding for your company.
What are SEIS and EIS for?
Essentially, these are both schemes that offer tax relief to people who invest money in your company in return for shares. SEIS is for companies that are preparing to trade, or are broadly in their first 2 years of trading; EIS is for companies that have been in business for longer – often, 7 years – but there are ways for older companies to qualify, e.g. if they have a significant new project to fund or have had EIS funding in the past. It’s the government’s way of helping you to grow and develop your business.
What’s the advantage of SEIS/EIS?
The bottom line is that these initiatives help you to get the funds your business needs to grow, at a time when you really need it. There are very generous income tax and Capital Gains Tax (CGT) reliefs for your investors, helping to “de-risk” the investment for them, and making it easier for you to attract investment. The amounts that you can raise, the limits of how big and how old your company can be, and the amount on which investors can claim relief, are enhanced if your company qualifies as an innovative “knowledge-intensive” business (this may well be the case if you do a lot of R&D or you’re developing some kind of intellectual property).
Companies can raise up to £150K under SEIS. For EIS, the limits are much more generous – a company can raise up to £5 million annually, with a lifetime limit of £12 million (or £10 million and £20m if you’re a “knowledge-intensive” company). You can use the schemes as many times as you like so long as you meet the conditions and stay within these limits.
Do you qualify?
Here’s a helpful chart of some of the conditions, to show you what’s what; as you see, the two schemes have quite a lot in common.
| SEIS | EIS |
| Your company needs to have a UK presence. | Your company needs to have a UK presence. |
| You have to be involved in a ‘qualifying’ activity*. (Most trades ‘qualify’, but there are exemptions – see below.) | You have to be involved in a new ‘qualifying’ activity*. (Most trades ‘qualify’, but there are exemptions – see below.) |
| You’re not listed on a recognised stock exchange when the shares are issued, and you don’t intend to do so. | You’re not listed on a recognised stock exchange when the shares are issued, and you don’t intend to do so. |
| You aren’t under 51% ownership of any other company. | You aren’t under 51% ownership of any other company. |
| You have an entrepreneurial trade, with plans to grow into the future. | You have an entrepreneurial trade, with plans to grow into the future. |
| You should have gross assets of less than £200K. | You should have gross assets of less than £15 million. |
| You should have fewer than 25 employees | You should have fewer than 250 employees. |
*Essentially, you can’t use SEIS or EIS if you have significant non-trading (investment) activity, or are in certain “excluded” activities, e.g. leasing/rental, hotels/nursing homes, professional/financial services, or receipt of royalties/licence fees unless you created the intellectual property in-house.
How do I apply for SEIS/EIS?
First and foremost, you need a strong business plan, along with your latest accounts and financial plans and forecasts covering (ideally) the next 5 years. You also need to have any details of any grant/competition funding to date. Here is an article providing some handy tips on business plans for SEIS and EIS.
You’ll have to show your company represents a genuinely entrepreneurial business with plans for growth and development in the future, and that there is nothing that would limit the risk to investors’ funds (e.g. asset-heavy businesses, with property that could be sold to recoup investments, may not qualify).
The application process usually starts before the share issue: your investors will probably want you to obtain “advance assurance” from HMRC that the share issue should qualify for SEIS/EIS. To do this, you must have the details of one or more potential SEIS / EIS investors who are willing to let you put their names on the application.
Assuming everything is in order, HMRC can generally give you a response to your advance assurance application within weeks, which means you can issue your shares and get your funds from the investors (note that payment must be made at the time of the share issue – advance payment, or late payment, won’t generally qualify; and loans can’t be converted into SEIS / EIS-qualifying shares).
This is where Henderson Loggie can help you: we have a vast range of knowledge and experience in helping a range of companies get their applications over the line, and we’re committed to helping you get the cash you need to grow. We can help you in a number of ways:
- Assess your business case, and let you know up-front if we think there are any issues you should address
- Ensure your business plan is fit for purpose and optimised for the application process
- Prepare your Advance Assurance Application based on your circumstances – we understand the need for a quick turnaround time and we’ll go the extra mile to ensure we put the best case possible to HMRC
- Look over the investment proposals to help identify any possible pitfalls
After the share issue, there’s a “compliance statement” that must be submitted to HMRC to show that the share issue met the SEIS/EIS conditions (this has to be done even if advance assurance was obtained, though the work involved tends to be reduced). Assuming HMRC is happy with everything, they will then give permission for your investors to be given certificates to allow them to claim tax relief.
What are the benefits for investors?
Your investors will benefit from income tax relief of 50% (SEIS) or 30% (EIS) of the amounts invested, which makes this a very attractive investment proposition. If held for three years, gains are exempt from CGT. There are also CGT breaks at the time of investment for some investors.
There is also an IHT exemption for SEIS and EIS shares held for two years.
Let’s wrap up
If you’re an entrepreneurial start-up, your growth and development is our business.
Our friendly, expert team here at Henderson Loggie is at the end of the phone for any questions you might have. We can help you avoid the SEIS/EIS pitfalls so you can secure the funding you need to realise your vision for your company.