The Seed Enterprise Investment Scheme – or SEIS – is a government-backed program offering investors a tax-efficient way of putting money in to early-stage UK businesses.
The idea is to promote entrepreneurship and enterprise which, in turn, will help boost the UK’s economic growth.
HM Revenue and Customs has put together a list of answers to frequently asked questions about SEIS – and this guide helps answer most questions asked by investors and companies considering SEIS.
Is SEIS the only tax relief scheme for corporate investment?
No, there is the Enterprise Investment Scheme (EIS) which is also for early-stage start-ups but those which carry a higher risk.
Can I register my company for SEIS?
That’s not how SEIS works. There is no register, so firms must issue their shares to investors, apply to HM Revenue and Customs (HMRC) for approval and once accepted, HMRC will send claim forms for the investors to complete to claim tax relief on their investment.
However, HMRC accepts that this could be seen as taking a leap into the dark and so has a process where the company can check with HMRC to ensure that their shares will comply with the criteria necessary. This is termed ‘advance assurance’.
Do I need to incorporate first?
HMRC will not consider the company’s application under advance assurance without the business incorporating as a limited company.
However, the company does not have to be registered for corporation tax and the service is free.
See the HMRC website for more about registering for corporation tax – https://www.hmrc.gov.uk/ct/getting-started/deadlines.htm
Do I need advance assurance first before finding investors?
No, you don’t need to get advance assurance first since there may be issues about the company set-up and management to discuss with your investors, but beware you cannot apply if the shares have already been issued.
If your shares have already been issued then complete the form SEIS1 and send it to HMRC for consideration. This form cannot be emailed or submitted online since HMRC need to see the original signature.
How does a company make an advance assurance request?
There are several ways to make a request for advance assurance, including email. See the HMRC for more information about the procedure. –
https://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=gkliCxR4XVU&formId=5157
Does SEIS apply to partnerships?
No, SEIS is aimed at raising equity investment for companies only, so a partnership is not eligible.
Can someone who lends me money claim SEIS?
SEIS does not cover loans made to a company, so those making the loan will not be able to claim tax relief under the scheme.
How old does a company have to be to qualify for SEIS?
There is a two-year age limit which applies to any trade carried out by the company at the time it issue shares to investors, or which it intends to carry on.
The trade cannot be older than two years from the date of issued shares and this covers any period when it was carried out by someone other than the company and then transferred to the company.
It’s also important to note that the company must not have carried out any other trade other than the new qualifying SEIS trade.
Must a company be trading to qualify for SEIS?
The company doesn’t have to be trading, but any money raised from the share issue must be used for research and development purposes which lead to a qualifying trade or preparing for a qualifying trade which the company intends to start.
Is there a time limit under SEIS in which the company must trade?
There is no time limit for the company to start its trade, but it must have spent all of the capital raised from a share issue within three years on research and development or preparing itself for a qualifying trade.
Can I offer SEIS shares even though I’ve had EIS/VCT investment?
No. Any company which has enjoyed EIS or venture capital trust (VCT) investment cannot qualify for SEIS since the scheme is aimed at helping early-stage companies which would otherwise struggle to raise finance, even under schemes like EIS.
My company has EIS assurance but not issued shares can I use SEIS?
Because you have not issued shares you should not be prevented from using SEIS but it would be worth checking first with HMRC.
Can relatives claim tax relief under SEIS for investing in my business?
Firstly there are no restrictions under SEIS for friends investing in your business but the situation is not quite so clear-cut for family.
For instance, an investor cannot qualify under SEIS if they hold more than 30% of the company, which also includes the holdings of associates such as spouses, parents and children. Some relatives fall outside this restriction, such as cousins and uncles, but it’s always advisable to get advice.
Do all for trades qualify for SEIS?
Most trades qualify under the rules, but there are some which may carry a lower risk, or those prohibited by European Union rules and asset-backed trades. You can find out more about the trades which qualify for SEIS on the HMRC website – https://www.hmrc.gov.uk/manuals/vcmmanual/VCM3000.htm
What is the cash limit I can raise under SEIS?
There is a tax year limit of £150,000 that a company can raise. Should you need more funds, you could use the Enterprise Investment Scheme (EIS) or, in some circumstances, you could use SEIS and EIS together to help raise funds.
Find out more about EIS on the HMRC web site – https://www.hmrc.gov.uk/eis/index.htm
Does the limit on assets under SEIS include liabilities?
When shares are issued under SEIS, the company must have assets worth no more than £200,000 and liabilities are not taken into account.
You can learn more about the test for gross assets in the Venture Capital Schemes’ manual. – https://www.hmrc.gov.uk/manuals/vcmmanual/VCM13110.htm
Without a balance sheet, what is used for the assets limit under SEIS?
You will need to detail all your assets as you would for compiling a balance sheet you were putting together before an investment was made.
How is the number of employees calculated under SEIS?
To qualify for SEIS, a company must have fewer than 25 employees – this is a fulltime equivalent figure and should include part-time and seasonal workers.
You can calculate that figure in a reasonable way, and you do not have to include staff who are on maternity or paternity leave, students or apprentices.
