How Do Companies Qualify for SEIS and EIS?
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two of the UK’s most attractive tax incentive programs designed to help early-stage and growing businesses raise investment. To access these schemes and offer tax benefits to investors, companies must meet strict eligibility criteria set by HMRC. Below, we break down how companies can qualify for SEIS and EIS.
General Requirements for Both SEIS and EIS
To qualify under either scheme, your company must:
Be based in the UK and have a permanent establishment in the UK.
Carry out a qualifying trade—most trading activities are acceptable, but some are excluded (e.g. banking, insurance, property development, legal services).
Not be listed on a recognised stock exchange.
Not be under the control of another company (i.e., it must be independent).
Use the funds for a qualifying business activity within a specific time frame.
SEIS Specific Requirements
SEIS is aimed at very early-stage startups. To qualify, companies must:
Be within 3 years of their first commercial sale.
Have gross assets of no more than £350,000 before the share issue.
Have fewer than 25 full-time equivalent employees.
Raise no more than £250,000 through SEIS.
Not have previously raised funds under EIS or other venture capital schemes.
EIS Specific Requirements
EIS supports more established businesses. To qualify, companies must:
Be within 7 years of their first commercial sale (or 10 years for knowledge-intensive companies).
Have gross assets under £15 million before the share issue, and not exceed £25 million after.
Have fewer than 250 full-time equivalent employees (or 500 for knowledge-intensive companies).
Raise no more than £12 million in total (or £24 million for knowledge-intensive companies), and no more than £5 million per year under EIS.
Qualifying Trades
To qualify for SEIS or EIS, your company must conduct a trade that HMRC considers eligible. Most early-stage businesses meet this criterion, but there are specific trades that are excluded.
If more than 20% of your company’s activities fall into the following sectors, you may not qualify:
Coal or steel production
Farming or market gardening
Leasing or letting assets
Legal or financial services
Property development
Operating hotels or nursing homes
Energy generation, including electricity and heat
Production of gas or other fuels
Exporting electricity
Banking, insurance, or any debt/financing services
Note: If your company is undertaking research and development (R&D) that will lead to a qualifying trade, you may still be eligible for SEIS/EIS.
Qualifying Conditions for Foreign or Non-UK Companies
Foreign or non-UK companies can potentially qualify for SEIS or EIS if they meet specific requirements:
The company must have a UK permanent establishment as defined under international tax rules.
The business must carry out a qualifying trade predominantly in the UK, and the benefit of the investment must support UK-based activities.
The issuing company must be subject to UK Corporation Tax.
All other SEIS/EIS eligibility criteria (e.g. trading status, gross assets, employee count) must also be met.
Non-UK companies considering SEIS/EIS should seek professional advice to ensure they meet HMRC's detailed criteria and correctly structure their UK presence.
Other Key Conditions
Risk to Capital Condition: Introduced in 2018, this rule requires that the investment poses a genuine risk to the investor’s capital and is made with the intention of growing and developing the company.
Advance Assurance: Although not mandatory, most companies apply to HMRC for Advance Assurance to confirm that they’re likely to qualify before seeking investors.
Qualifying Shares: Shares must be ordinary shares with no preferential rights to dividends or assets.
Investor Independence: Investors must not be connected to the company (e.g. they cannot be employees or own more than 30% of the company).
Conclusion
Qualifying for SEIS and EIS can open up valuable funding opportunities for UK businesses. However, meeting the criteria requires careful attention to detail and ongoing compliance. By understanding the requirements and planning ahead, companies can position themselves as attractive, tax-efficient investment opportunities for potential investors.
If you need help assessing your eligibility or preparing an Advance Assurance application, speak to our team at Upstack today.
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.