The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are two of a number of UK government initiatives which encourage innovation by granting private investors a significant tax break when investing in early stage, ‘high-risk’ companies. If your start-up is fundraising you’ll want to make yourself more investible and these schemes help you do just that.
What is the SEIS?
SEIS is a scheme designed to give the economy a boost and help attract investors. The scheme entitles start-ups to receive considerable funding but there’s a lifetime cap of £150,000.
In order to be eligible for SEIS your company must:
- Have less than 2 years trading history
- Not be quoted
- Not be controlled
- Have a UK permanent establishment
What does the investor get:
- 50% income tax reducer for the current year and previous tax year
- 50% capital gains reducer if they roll previous gains into an SEIS company from prior investments
- 0% capital gains tax on any rise in market value of their shares
- 50% extra loss relief on the capital at risk if the company fails
- 100% inheritance tax relief
SEIS vs EIS: What’s the difference?
The two schemes are similar, but have some important differences.
SEIS is focused on very early-stage companies, and allows an individual to invest up to £100,000 per tax year and to receive a 50% tax break in return. The investor will also benefit from a capital gains tax exemption on any profits that arise from the sale of shares after three years.
EIS, on the other hand, focuses on medium sized startups. It allows an individual to invest up to £1 million per tax year and to receive a 30% tax break in return. As with SEIS, the investor will also pay no capital gains tax on any profit arising from the sale of the shares after three years.
With both SEIS and EIS, there is no inheritance tax to pay on shares held for at least two years. Finally, if shares are eventually sold at a loss, the investor may offset the loss against their capital gains tax.
What types of company are eligible for SEIS & EIS?
Most trades do qualify for SEIS and EIS funding, but a number are excluded from the schemes entirely. Excluded trades include those dealing in land or commodities, those involved with banking, insurance or money-lending, those providing legal or accountancy services, those involved in property development and those generating and exporting electricity. There will inevitably be some grey areas that may need further analysis. A useful point to note is that companies are only excluded from raising money under SEIS and EIS, if a ‘substantial’ element (+20%) of their trade activity consists of the excluded activity.
What can your company use the SEIS and EIS investment for?
In order to accept SEIS or EIS investment, the funds raised must be used for a qualifying business activity. They must be used solely to promote the growth and development of the company, such as hiring new employees, developing the product or marketing.
How much can a company raise under SEIS & EIS?
A company can raise a maximum of £150,000 in SEIS funding, whilst a maximum of £12 million per company can be raised in EIS funding.
Sub-head - How we can help
At Max we’ve helped many start-ups gain SEIS assurance and clearance and can help businesses like yours understand SEIS company requirements.
For further details about how SEIS/EIS can help your business, call Martin Hickman on 01572 770727 or email email@example.com