Understanding the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) is essential for early-stage companies looking to raise investment in the UK’s complex funding landscape. These government-backed schemes offer significant tax incentives to investors, helping you secure funding from investors more easily.

Understanding SEIS and EIS

SEIS is designed for very early-stage companies. It allows investors to claim up to 50% income tax relief on investments of up to £200,000 per tax year. Additionally, any capital gains on SEIS shares are exempt from Capital Gains Tax (CGT) if held for at least three years.

EIS, on the other hand, targets slightly more mature startups. Investors can claim 30% income tax relief on investments up to £1 million per tax year, with the potential to increase to £2 million if at least £1 million is invested in knowledge-intensive companies. Like SEIS, EIS also offers CGT exemption on shares held for three years.

Both schemes can significantly reduce perceived investor risk, making it easier to attract angel investors and early-stage venture funds to back your startup.

Eligibility Criteria

To qualify for SEIS, your company must:

• Be established in the UK

• Have been trading for less than three years

• Have fewer than 25 full-time employees

• Possess gross assets of less than £350,000

• Not be listed on a recognised stock exchange

For EIS, the criteria are:

• UK-based

• Trading for less than seven years

• Employing fewer than 250 full-time staff

• Holding gross assets under £15 million

It’s important to note that certain trades, such as banking, insurance, and property development, are excluded from both schemes.

You’ll also need to show that the funds raised will be used for growth and development, not to repay existing shareholders or buy existing shares.

Benefits for startups

SEIS and EIS are practical, powerful tools that can help your startup stand out when raising funds. By securing SEIS or EIS status, startups can:

• Attract a broader range of investors due to the tax incentives

• Raise up to £250,000 under SEIS and up to £12 million under EIS

• Enhance credibility and visibility in the investment community

They can also signal that your business is investment-ready, having met a baseline of financial and legal checks.

Application Process

Applying for SEIS or EIS involves a few key steps, and getting them right builds trust with investors and avoids delays. Here’s how it typically works:

1. Advance Assurance: Before seeking investment, apply to HMRC for advance assurance to confirm your eligibility. This reassures potential investors about the tax reliefs they can claim.

2. Prepare Documentation: Compile your business plan, financial forecasts, and investor details.

3. Submit Application: Use your accountant or legal advisor to prepare and submit your application to HMRC. Having professional support helps ensure everything is accurate, complete, and aligned with HMRC’s expectations.

4. Post-Investment Compliance: After receiving investment, maintain compliance by submitting SEIS1 or EIS1 forms to HMRC and issuing SEIS3 or EIS3 certificates to investors.

Staying Compliant

Maintaining compliance is essential to preserve your investors' tax reliefs. Key considerations include:

• Funds raised must be used for qualifying business activities within three years for SEIS and two years for EIS.

• Investors must hold the shares for at least three years.

• Any significant changes in business activities or structure should be reported to HMRC.

Failure to comply can lead to tax relief being withdrawn, so it’s worth keeping on top of reporting requirements and timelines. Many startups work with accountants or lawyers to ensure nothing is missed.

In a competitive market, SEIS and EIS approval can help you secure funding while showing investors your business is set up for long-term growth.

FAQs

Can I get SEIS and EIS on the same round?

Yes, you can split a funding round into SEIS and EIS tranches, but you must issue SEIS shares first and wait at least one day before issuing EIS shares.

What is the maximum you can raise under SEIS and EIS?

You can raise up to £250,000 under SEIS and up to £12 million under EIS, including any amounts previously raised under EIS or VCT.

How long does it take to get SEIS/EIS approval?

Advance assurance from HMRC typically takes 4-6 weeks, so it’s worth preparing early.