What is the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) and do I qualify?
Are you an unlisted company? Do you have a permanent establishment in the U.K and are looking for investment? You may qualify for one of HMRC’s venture capital schemes. These schemes are designed to encourage investment in start-ups and growing SMEs, by providing a tax break for investors.
While there are various funding options out there, we will be focussing on the two most common; SEIS and EIS.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) offers great tax efficient benefits to investors, in return for investment in small and early stage start-up businesses in the U.K.
A company must satisfy these criteria:
- Trading as a company for less than 2 years
- Less than 25 employees
- No more than 200k in gross assets.
- Had no previous investment through EIS or Venture Capital Trust
- Your two years start after you’ve made your first commercial sale, not from the date you register your business
SEIS allows a company receive investment up to £150,000, which can come from a several different investors. These investors also receive a tax break of 50%.
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme helps smaller high-risk companies raise finance, by offering tax relief to investors who purchase shares in those companies. The maximum total investment value is £12 million and can consist of a number of investors. The value of what can be raised in a twelve-month period is capped at £5 million and tax relief for investors is 30%.
As with SEIS, there are some conditions to be met by companies who apply for EIS:
- No more that 15m in gross assets
- Less than 250 employees
- Must receive investment within seven years of its first commercial sale
You can extend EIS for a further three years if you’re a knowledge intensive business. To qualify as a knowledge intensive company, the company must do one of the following:
- Spend a certain proportion of their operating costs on R&D or innovation – at least 10% of total operating costs in each of the three years prior to the EIS investment;
- Spend at least 15% of operating costs on R&D or innovation in one of the three years
Points to remember
- For both schemes, investors must keep their investment in the business for a minimum of three years
- The investment made must be spent within the 3-year period on the qualified trade and cannot be used to invest in other companies
- Many investors will prefer to engage with companies that have applied for pre-clearance or ‘Advanced Assurance’. While this is not a guarantee that the final investment will qualify for HMRC, it’s definitely worth thinking about
- Advance assurance can take up to six weeks to be processed and the details required to support an EIS application is more detailed than an SEIS clearance. Click here to head straight to the Advance Assurance application form
What’s in it for investors?
- As long as the investment is for three years, investors will receive a 50% tax break for SEIS and 30% for EIS
- No capital gains tax to pay on profits
- Can claim loss relief against income tax
- No inheritance taxes
An investor is still required to pay capital gains tax on any dividends received. In addition to this, they can only invest up to £100,000 in a 12-month period through SEIS and £1 million through EIS.
The final word
It’s advisable to explore getting advance assurance as part of your business preparation plans. Filing in the form only takes about 10 minutes and it can help avoid any surprises with HMRC – it’s better to uncover these issues before an investor commits themselves to the venture. It’s also important to remember that not all businesses can apply for these schemes; click here for details of companies that are not eligible.
How can we help?
If you’re interested in getting your business registered as either SEIS or EIS, head to swoopfunding.com and we’ll help you with this process. You can also use our platform to find SEIS/EIS funds that will help you source the finance you need.
If you’re at the beginning of your business journey and need a hand getting investor ready, follow this link for some great resources we’ve put together. From pitch deck help to assistance in developing your financial model, we’ll have you ready to wow those investors in no time.