An incredible tax incentive for UK investors
What is it?
The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer Income Tax relief of 50% and 30% respectively of the original investments as well as exemption from Capital Gains Tax, where the shares are held for longer than three years.
Investors benefit from these tax breaks when they invest in new shares of a small company. If eligible, SEIS is one of the most generous reliefs of its type. Companies have a lifetime SEIS limit of £150K, after this EIS comes into play, which has much larger thresholds.
Startups raising under either scheme must spend the funds on trading activities or use them for research and development purposes.
When should I apply?
The company must not be more than two years old at the date of issue of the shares, have fewer than 25 employees and no more than £200,000 in gross assets. Startups looking to raise, should do so under the SEIS scheme sooner rather than later.
The company must have been trading for less than seven years (10 years for a technology company) before the issue of shares, and have fewer than 250 employees and no more than £15 million in gross assets.
The money raised by the share issue must be employed within 3 years for SEIS and 2 years for EIS of the shares being issued.
How do I do it?
Potential investors are likely to want some form of assurance that their investments will qualify for SEIS and/or EIS tax relief. Once it has been established that the company will qualify for the relief, an application can be submitted for Advanced Assurance from HMRC, which is very useful for attracting investors.
After the shares have been issued, a declaration is submitted on form SEIS1 or EIS1 and details of the investor are provided to HMRC. Following this, the certificates SEIS3 or EIS3 can be issued to individual investors, allowing them to claim their tax reliefs.
What are the common pitfalls?
Not understanding the timeline
Issuing shares before cash is received
Not seeking tax advice
Ceasing to be a qualifying company within 3 years of the issue of shares