What is the Seed Enterprise Investment Scheme (SEIS)?

Small and new businesses seeking to raise capital for growth have several options to explore, including debt financing, asset financing, grants, and equity investments.

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SCHEME

What is the Seed Enterprise Investment Scheme (SEIS)?

Similar to the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), established in 2012, is a UK government initiative designed to stimulate economic growth and foster innovation by encouraging private investors to buy stakes in smaller businesses.

This scheme helps smaller and often younger businesses secure the necessary capital for expansion through private share purchases.

Companies utilizing the SEIS can raise up to £250,000, with a gross limit set at £350,000.

The annual investor limit is £200,000.

Capital raised through the SEIS must be spent on either:

  • Expenses to help grow the company, such as marketing, new equipment, or additional employees
  • Research and development to enhance the company’s future growth potential, such as developing a new product

Given that smaller and younger businesses are inherently riskier investments compared to more established companies (which might use the EIS or pursue a full IPO), the SEIS offers investors several tax advantages to encourage investment.

What are the advantages of the Seed Enterprise Investment Scheme to Businesses?

SEIS is designed to help smaller or newer businesses secure crucial funding to grow.

Under SEIS, start-ups can raise up to £250,000.

It’s important to note that this sum includes any other de minimis state aid received within the three years leading up to and including the date of the investment.

This funding raised through SEIS also counts towards any limits for subsequent investments made through other venture capital schemes.

If your business is eligible, you may be able to secure additional funding through the Enterprise Investment Scheme (EIS) after exhausting your SEIS limit.

Please remember that funds raised through SEIS must be spent within three years of the share issue and should be used to develop and grow your business.

ATTRACTIVE

Why is the Seed Enterprise Investment Scheme attractive to investors?

Income Tax Relief

Investors are eligible for up to 50% income tax relief on their investment, with the current limit set at £200,000 per year.

Capital Gains Tax Exemption

Profits derived from the sale of shares are exempt from Capital Gains tax, provided the shares have been held for a minimum of three years.

Loss Relief

Investors are eligible for up to 50% income tax relief on their investment, with the current limit set at £200,000 per year.

attractive and financially viable for private investors.

Capital Gains Reduction

If an investor liquidates other investments to support an SEIS-qualified venture, they are eligible for a 50% reduction in capital gains tax on the original investment.

Which Companies are Eligible for Seed Enterprise Investment Scheme?

Your business is eligible to apply for SEIS if it meets the following criteria:

  • The company is established in the UK.
  • It engages in a new qualifying trade.
  • The business has been trading for no longer than three years.
  • The company’s gross assets do not exceed £350,000 at the time of share issuance.
  • The business is not listed on a recognized stock exchange at the time of share issuance.
  • The company has fewer than 25 employees when the shares are issued.
  • The company does not control another firm, unless it is a qualifying subsidiary.
  • After incorporation, the business has not been controlled by another company.
  • The company is not part of a partnership.
  • The business has not received investment through the EIS or from a venture capital trust.

Companies based outside the UK can still qualify for SEIS if they have a permanent establishment in the UK, such as an office, factory, shop, or a UK-based agent authorized to enter contracts on the company’s behalf.

Please note that certain trades, such as property development, financing services, and leasing activities, are excluded from eligibility.

For more information about qualifying trades and company eligibility, you can refer to the government’s guidelines.

How to check investor eligibility for the Seed Enterprise Investment Scheme

Before engaging with potential investors, it’s crucial to ensure they meet the eligibility requirements for SEIS.

An eligible investor under SEIS must:

  • Be an individual, not a corporate entity.
  • Be a taxpayer in the UK.
  • Not hold more than 30% of the company’s total shares, as holding more would be considered a ‘substantial interest’ by HMRC and disqualify them from SEIS.
  • Not be an employee of the company or have a close relative employed by the company. However, company directors are not subject to this restriction.

Additionally, SEIS relief is only applicable to ordinary full-risk shares. Shares with additional rights are not eligible for this scheme.

ATTRACTIVE

Why is the Seed Enterprise Investment Scheme attractive to investors?

Financial Forcasts

These provide an outlook on your company’s financial performance and offer insights into its potential profitability.

A Business Plan

This document outlines your company’s objectives, strategies, and projected timelines.

Additional Documents

Details of any previous investments received from capital schemes.

For a comprehensive list of all the required documents, you can visit the Gov.uk website.

It is crucial to provide accurate and complete information to ensure a smooth application process.

What is Advanced assurance?

Before applying for SEIS, you can verify with HMRC if your intended investment meets SEIS eligibility conditions by obtaining ‘advance assurance.’ This step can increase investor confidence in your business.

To obtain advance assurance, you must submit the following documents to HMRC:

  • A copy of the most recent accounts.
  • A comprehensive business plan.
  • Specific details of the amount you aim to raise through the investment.

Advance assurance can be a valuable tool for attracting potential investors by providing them with confidence that the investment is likely to qualify for SEIS.

For more information on obtaining advance assurance, visit the relevant section on the Gov.uk website.

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