Understanding SEIS and EIS Advance Assurance: A Guide for UK Founders
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are UK government initiatives designed to encourage investment in early-stage companies by offering attractive tax reliefs to investors. To enhance the appeal to potential investors, companies can seek Advance Assurance from HM Revenue & Customs (HMRC), indicating that their proposed share issuance is likely to qualify for these tax reliefs.
What is Advance Assurance?
Advance Assurance is a confirmation from HMRC that, based on the information provided, an investment is expected to meet the qualifying conditions for SEIS or EIS tax reliefs. This assurance provides potential investors with confidence that their investments will be eligible for the associated tax benefits.
Why is Advance Assurance Important?
Obtaining Advance Assurance is crucial for several reasons:
Investor Confidence: Many investors require assurance that their investments will qualify for tax reliefs before committing funds. Advance Assurance serves as a form of validation, increasing the attractiveness of the investment opportunity.
Fundraising Facilitation: With Advance Assurance, companies may find it easier to secure funding, as it reduces the perceived risk for investors regarding the eligibility of tax reliefs.
Eligibility Criteria for SEIS and EIS
To qualify for SEIS or EIS, companies must meet specific criteria, including:
Company Status: Must be a UK-based trading company, not listed on a recognized stock exchange, and not controlled by another company.
Employee Count: For SEIS, fewer than 25 full-time equivalent employees; for EIS, fewer than 250.
Gross Assets: Not exceeding £350,000 for SEIS and £15 million for EIS at the time of share issuance.
Qualifying Trade: Engaging in a qualifying trade, with certain activities like financial services and property development being excluded.
How to Apply for Advance Assurance
The application process involves:
Preparation: Gather necessary documents, including a detailed business plan, financial forecasts, latest company accounts, and an explanation of how the company meets the 'risk to capital' condition.
Submission: Complete the Advance Assurance application form and submit it to HMRC along with the supporting documents.
HMRC Review: HMRC assesses the application and, if satisfied, provides a letter confirming that the proposed investment is likely to qualify for SEIS or EIS tax reliefs.
Key Considerations
Accuracy: Ensure all information provided is accurate and complete to avoid delays or rejections.
Risk to Capital Condition: Demonstrate that the company aims to grow and develop in the long term and that the investment carries a significant risk of loss to the investor's capital.
Excluded Activities: Verify that the company's activities do not fall within the excluded categories specified by HMRC.
Conclusion
Advance Assurance is a valuable step for companies seeking investment under the SEIS or EIS schemes, as it provides potential investors with confidence regarding the availability of tax reliefs. By understanding the eligibility criteria and ensuring a thorough application, companies can enhance their attractiveness to investors and facilitate successful fundraising efforts.
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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.