SEIS / EIS Tax Reliefs

Making your company more investable.

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 company is fundraising, you’ll want to make yourself more investible and these schemes help you do just that.

However, the tax rules are complicated and there are various criteria which must be met by both the investor and the company – if you fail on a technicality, the investors could lose their tax relief altogether.

Therefore, we recommend you work with an expert, rather than a ‘high street’, accountant if you are planning to raise equity finance via SEIS or EIS.

We provide a complete SEIS / EIS service including:

  • Seeking advance assurance from HMRC. This is not compulsory but does provide comfort to would-be shareholders that any investment would qualify for (S)EIS
  • Filing the SH01 with Companies House in respect of shares allotted and issuing share certificates to shareholders
  • Submitting the (S)EIS1 compliance statement to HMRC and seeking (S)EIS certification on behalf of the investors
  • Completing the (S)EIS3 certificates and issuing to investors.

What is the SEIS?

The SEIS offers private investors generous tax reliefs on investments into start-up companies in the UK:

  • Income tax relief of 50%
  • Capital Gains tax exemption
  • Loss relief if companies fail
  • Reinvestment relief
  • Inheritance tax relief

Investors may claim relief on up to £200,000 invested through the scheme per tax year.

The SEIS therefore provides an incentive for investment in early-stage companies which meet the following criteria:

  • Trading for under 3 years
  • Fewer than 20 employees
  • Less than £350,000 in gross assets
  • Unquoted
  • Not be controlled
  • Have a UK permanent establishment

Qualifying companies can raise up to £250,000 under the scheme.

What is the EIS?

Like the SEIS, the EIS offers incentives for private individuals to invest in young, high-risk UK companies, although the tax reliefs are slightly lower than for SEIS:

  • Income tax relief of 30%
  • Capital Gains tax exemption
  • Loss relief if companies fail
  • Reinvestment relief
  • Inheritance tax relief

An individual can invest up to £1 million through the scheme per tax year.

EIS is designed for medium sized businesses and companies must meet the following criteria:

  • Trading for under 7 years
  • Fewer than 250 employees
  • Under £15 million in gross assets
  • Unquoted
  • Not be controlled
  • Have a UK permanent establishment

Qualifying companies can raise up to £12 million in total in EIS funding, capped at £5 million in any 12-month period.

What types of company are eligible for SEIS & EIS?

Most trades do qualify for SEIS and EIS funding, but companies will be excluded from the schemes if they are:

  • Dealing in land, property development and leasing
  • Dealing in goods other than normal retail or wholesale distribution
  • Dealing in financial instruments, banking, insurance, hire purchase, money lending and other financial activities
  • In receipt of royalties or licence fees
  • Engaged in legal and accounting services
  • Carrying out farming and market gardening
  • Carrying out forestry
  • Operating or managing hotels or residential care homes
  • Engaged in coal production, steel production and shipbuilding
  • Engaged in all energy generation activities

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.

Knowledge Intensive Companies (KICs)

If you can demonstrate that your company meets HMRC’s criteria for a KIC, then you will be eligible for additional benefits under EIS:

  • Raise up to £20 million in total, and up to £10 million per annum
  • A 10-year fundraising window
  • You can have up to 500 employees
  • Investors can claim tax relief on up to £2 million per tax ear, as long as at least £1 million is invested in KICs

Your company is likely to qualify as a KIC if:

  • You are creating IP and expect the majority of your business to come from this within 10 years
  • You have 20% of employees carrying out research for at least 3 years from the date of investment; these employees must be in a role that requires a relevant Master’s (or higher) degree
  • A sufficient proportion of your operating costs include expenditure on research, development or innovation and this expenditure is within a certain timeframe in relation to the EIS investment

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 to help the business grow and develop (e.g. hiring new employees, developing the product and marketing) and must also:

  • Present an actual risk of loss of capital for the investor
  • Not be used to buy all/part of another business
  • Be spent within 2 years of the investment or the date you started trading (if later)

Require more information?

Please get in touch if you would like to discuss how (S)EIS tax reliefs can help your fundraising efforts!