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Want a secret to getting investors on board? Become SEIS/EIS-eligible. The Seed Enterprise Investment Scheme and Enterprise Investment Scheme are UK government initiatives to encourage investment in UK startups.
Under the SEIS and EIS schemes, private investors get a significant tax break as a reward for investing in early-stage, ‘high-risk’ companies.
Many investors won’t invest in your company unless it’s SEIS/EIS-eligible so getting SEIS/EIS-approved makes your company dramatically more attractive to investors. This guide covers how SEIS/EIS works and what you need to do to give investors their tax breaks.
The overarching benefit of SEIS/EIS is that the schemes help to encourage innovation and stimulate the UK economy by incentivising investment in growing companies. We’ve listed the benefits for investors and companies below.
Tax relief for investors: SEIS/EIS offer generous tax relief for investors who put money into eligible startups. Investors can claim back up to 50% of the amount invested for SEIS and 30% for EIS as income tax relief, which can significantly reduce the risk and increase the appeal of investing in early-stage companies.
Access to capital: SEIS/EIS makes it easier for startups to raise capital by offering tax incentives to investors. This can help to attract a wider range of investors, including high-net-worth individuals and angel investors, who may be more willing to take a risk on an early-stage business if there’s a tax break in it for them
Potential for follow-on funding: SEIS/EIS can act as a stepping stone to secure follow-on funding. Once you’ve successfully raised SEIS investment, it may be easier to attract additional funding from other sources.
SEIS is for smaller, seed-stage companies and EIS is for larger, more established companies. Both schemes have the same aim: to encourage investment in new, high-risk, high-potential UK companies. Each scheme has different eligibility criteria and restrictions.
Your company could be eligible for SEIS funding if it:
Your company could be eligible for EIS funding if it:
For both SEIS and EIS your company will only be eligible if it doesn’t trade in any excluded activity, so be sure to check that your trading activities aren’t on the list.
There are also rules for the amount you can raise. For SEIS, UK startups can raise up to £250,000. Previously it was £150,000 but HMRC has now increased the amount (read more in You can now raise £250k SEIS). For EIS, UK companies can raise up to £12 million.
Can you raise SEIS and EIS at the same time?
You can raise SEIS and EIS funding at the same time, so long as you do it in the right order. Because SEIS is designed for early-stage businesses, you can’t raise under the EIS scheme and then go back to claiming as a seed company.
But, if you time things right and keep on top of the admin, you can offer investors EIS shares after you’ve reached the SEIS limit of £250,000.
There are three key elements to getting your SEIS/EIS sorted:
We’ve covered the eligibility criteria already and we’ll unpack the remaining two elements in the following sections.
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SEIS/EIS Advance Assurance is pre-approval from HMRC that your company is eligible for SEIS/EIS. Investors want to be guaranteed that they can get their SEIS/EIS tax relief before they invest and Advance Assurance gives them that guarantee.
To get Advance Assurance you need to submit an application to HMRC along with supporting documentation. If you get approval, HMRC will send you a statement saying the investment is likely to qualify for tax relief. You can show this statement to investors.
The supporting documentation you need to submit for your Advance Assurance is quite extensive. It includes a 3-year business plan and detailed financial forecast. HMRC needs to be satisfied that your company has the potential for success, while still posing a risk to your investor’s capital.
For more detail on Advance Assurance, check out the article How to Apply for SEIS/EIS Advance Assurance.
You can apply for Advance Assurance directly through HMRC, but an even easier way is to apply through SeedLegals. Their platform makes it quick and easy to create your application - plus they have SEIS/EIS experts on hand to guide you through the process, review and submit your application and correspond with HMRC on your behalf. Using SeedLegals eliminates the chance of error and makes the application process faster.
After you’ve finished your funding round and issued shares, you need to give your investors SEIS/EIS compliance certificates so they can get their tax relief.
For SEIS:
You can read more about the process and supporting documentation in the article SEIS: Guide to the Seed Enterprise Investment Scheme.
For EIS:
You can read more about the process and supporting documentation in the article The complete guide to EIS compliance.
At Concept, we think the easiest way to get your compliance certificates is to use SeedLegals. Their intuitive platform makes it simple to create, store and share the necessary documents, plus you get unlimited help from their experts to answer questions and give you guidance whenever you need it. It just makes everything so much faster and easier, plus the expert help comes at no extra cost.
If you’re interested in doing your SEIS/EIS through SeedLegals you can book a call to find out more.
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This post was written by our friends at Seedlegals as part of our initiative to deliver more content to the ecosystem via our platform and brand.
