SEIS investment scheme: how it works
If you’re an early-stage UK company with fewer than 25 employees and big ambitions, you could be eligible for SEIS...
This article will cover the following:
What is a Seed Enterprise Investment Scheme (SEIS)?
Launched by the government back in April 2012, the SEIS investment scheme is designed to incentivise investment in early-stage companies by offering tax efficient benefits to investors.
The incentive comes in the form of income tax relief and an exemption from capital gains tax (CGT). This in turn boosts economic growth by promoting enterprise and entrepreneurship.
Unlike the Enterprise Investment Scheme (EIS), SEIS is focused solely on helping small, young companies looking to raise equity finance.
The Start-Up Series – a monthly competition run by Startups.co.uk and investment promoter Worth Capital – gives one business every month the chance to win up to £150,000 or £250,000 in SEIS or EIS funding. Find out more about The Start-Up Series and enter here.
How do SEIS schemes work?
Introduced in former Chancellor George Osborne’s 2011 Autumn Statement, SEIS is designed to help early-stage businesses when they’re just starting to trade.
What amount of finance can SEIS raise?
Your business can obtain up to £150,000 of funding through the SEIS. This is a cumulative limit, not an annual limit, and you must not have previously raised money under EIS or venture capital trust (VCT) schemes.
The money you raise must be spent within three years on either:
- A qualifying trade
- Preparation to carry out a qualifying trade
- Research and development that you expect to lead to a qualifying trade
You are not allowed to use the investment to buy shares, unless they are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.
Karen invests £120,000 via SEIS during 2017/18
Karen invests £70,000 via SEIS during 2018/19
As Karen has not used £30,000 of the £100,000 limit in 2018/19, she can carry back the surplus to the previous year. Therefore, she may obtain full income tax relief for both years. This means she will get a tax deduction of up to £95,000 over the two years, calculated by being 50% x (£120,000 + £70,000).
James sells his shares for £200,000 in June 2018, making a profit (or gain) of £90,000. Providing James makes qualifying investments of at least £90,000 in SEIS shares in the remainder of 2018/19 and all other conditions are met, the £90,000 gain will be completely free of CGT. Note that James does not need to invest the proceeds of £200,000 in order to obtain full exemption from CGT.
How does SEIS work for your investors?
Investors are able to invest a maximum of £100,000 in a single tax year, which can be spread over a number of companies. They must not have a controlling stake in any of the companies they invest in.
Investors can receive an income tax relief worth up to 50% of investments of up to £100,000 per annum, as long as they invest in a company which meets these SEIS requirements. If the £100,000 limit is not utilised, any surplus may be carried back to the previous year.
Shares in a company must be held by the investor for a period of three years, from the date of issue, for the tax relief to be retained. If the investor is disposed of within that three year period, or if any of the qualifying conditions cease to be met during that period, relief will be withdrawn or reduced.
As well as this income tax relief, Capital Gains Tax (CGT) exemption is also available on gains on shares within the SEIS programme, giving investors a further tax break worth up to 28% of their gain.
Is my business eligible for SEIS?
In order to be eligible for SEIS, there are some fairly strict criteria your business has to meet.
Your business must:
- Be based in the UK, and have a permanent establishment in the British Isles
- Have fewer than 25 employees
- Be no more than two years old
- Have assets of less than £200,000
- Trade in an approved sector, e.g. finance, investment (note: property businesses can’t raise capital through SEIS)
Your company can use the scheme if it:
- Carries out a new qualifying trade
- Is not trading on a recognised stock exchange at the time of the investment
- Is not intending to become a quoted company, or a subsidiary of one, at the time of the investment
- Does not control any other company, and has not been controlled by another company since the date of your company being incorporated
If it doesn’t look like SEIS is suitable for your business, check out our section on raising finance for everything you’ve ever wanted to know about funding.
How can I raise SEIS investment?
Before you apply for SEIS, you can contact HMRC to ask if your investment is likely to qualify.
Known as advance assurance, this can be used to prove to investors that your proposed investment may meet the necessary conditions for the scheme.
Whether you get advance assurance or not, you’ll need the following in order to apply for SEIS:
- The amount you intend to raise
- Your business plan and financial forecasts
- Latest accounts
- Details of all trading and how much you expect to spend on each activity
- Details of any other venture capital (VC) schemes you’ve raised finance from
- The latest draft of your proposal to potential investors
You can find a more comprehensive breakdown of the information you’ll need to apply for SEIS on the Gov.uk website.
Enter the Start-up Series to raise SEIS
If you’re searching for a quick and easy way to apply for SEIS investment, look no further than The Start-Up Series.
Run by Startups.co.uk and experienced investment promoter Worth Capital, The Start-Up Series is the UK’s largest seed funding competition, giving one business every month the chance to win up to £150,000 or £250,000 in equity seed funding.
The investment comes from a dedicated EIS & SEIS fund, launched specifically to back the qualified winners of the series of competitions.
Businesses are eligible for the Start-Up Series if they meet the criteria outlined above.
The competition runs from the 1st to the 14th of every month. Enter here.