SEIS & EIS Explained: An Overview of SEIS & EIS Scheme for UK Founders
What is SEIS?
SEIS (Seed Enterprise Investment Scheme) is aimed at very early-stage companies, offering generous tax reliefs to investors:
Investors can claim up to 50% income tax relief on their investment.
The maximum investment per investor is £200,000 per tax year.
Companies can raise up to £250,000 under SEIS.
Capital Gains Tax (CGT) relief is available on reinvested gains.
What is EIS?
EIS (Enterprise Investment Scheme) supports growing businesses by offering tax incentives to investors:
Investors can claim up to 30% income tax relief on their investment.
The maximum investment per investor is £1 million per tax year (or £2 million for knowledge-intensive companies).
Companies can raise up to £12 million under EIS.
Investors can defer Capital Gains Tax (CGT) on gains reinvested in an EIS-eligible company.
Eligibility Criteria for Companies
To qualify for SEIS or EIS, companies must meet specific requirements:
Must be a UK-based trading company.
Cannot be listed on a stock exchange.
Must have fewer than 25 employees (SEIS) or 250 employees (EIS).
Gross assets must not exceed £350,000 (SEIS) or £15 million (EIS).
Must not be engaged in excluded activities, such as finance, property development, or legal services.
How to Apply for SEIS/EIS?
The SEIS/EIS application process involves several steps:
Advance Assurance – Companies can seek confirmation from HMRC that they qualify.
Issue Shares – The company must issue shares that comply with SEIS/EIS rules.
Compliance Statement – The company submits SEIS1/EIS1 forms to HMRC for approval.
HMRC Approval – If accepted, HMRC provides compliance certificates for investors.
Investors Claim Tax Relief – Investors use these certificates to claim tax relief via their self-assessment tax return.
Risks and Considerations
While SEIS and EIS offer attractive benefits, there are important factors to consider:
Companies must trade for at least four months or spend 70% of raised funds before investors claim relief.
Investments must be made within three years (SEIS) of the trading date and seven years (EIS) of the first commercial sale.
Investors (including associates) holding more than 30% of shares or voting rights are ineligible.
Tax relief may be reduced or withdrawn if the company provides value to investors (e.g., repaying an investor’s loan).
Final Thoughts
SEIS and EIS remain powerful funding mechanisms for UK startups and high-growth companies. By understanding the tax benefits, eligibility requirements, and compliance processes, both companies and investors can make informed decisions and maximise the opportunities offered by these schemes.
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Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. SEIS and EIS eligibility, tax reliefs, and compliance requirements are subject to HMRC regulations and may change. Investors and businesses should seek independent professional advice before making any financial or investment decisions.