Attracting investors can be paramount to a small business that wants to be successful and have the backing it needs to reach its goals.
Two effective initiatives for attracting funding are the tax effective Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)
Under these schemes, private investors get a significant tax break as a reward for investing in early-stage, ‘high-risk’ companies.
With many investors now expecting SEIS/EIS as standard, getting approved will make your company an attractive option and give your startup the financial benefit it needs to succeed.
So how exactly does your business benefit from these investment schemes? And how do you become eligible? We are here to help.
What are the benefits of SEIS and EIS?
Both SEIS and EIS have become standard for startups seeking cash to continue innovating, encouraging growth and helping to boost the UK economy through incentivised investments.
SEIS/EIS offers 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 reduces the risk and increases the appeal of investing in early-stage companies.
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 is a tax break in it for them
And, once you have successfully raised SEIS investment, it may be easier to attract additional funding from other sources.
How do SEIS and EIS work?
There are three key elements to getting started with SEIS and EIS:
- understand if you are eligible
- get advance assurance
- give investors compliance certificates.
Is my business eligible?
SEIS is for smaller, seed-stage companies, whereas EIS is for larger, more established companies.
Both schemes aim to encourage investment in new, high-risk, high-potential UK companies. There are different eligibility criteria and restrictions for each scheme.
For SEIS
Your company could be eligible for SEIS funding if it:
- is established in the UK
- carries out a new qualifying trade
- has been trading for less than three years
- has less than £200,000 in gross assets at the time of investment
- has fewer than 25 full-time employees
- is not a public company (i.e. not traded on a recognised stock exchange)
- is not controlled by another company
- does not control another company (unless they are qualifying subsidiaries)
- has not already received any EIS funding.
For EIS
Your company could be eligible for EIS funding if it:
- is established in the UK
- carries out a qualifying trade
- has been trading for less than seven years
- has less than £15 million in gross assets at the time of investment
- has fewer than 250 full-time employees
- is not a public company (i.e. not traded on a recognised stock exchange)
- is not controlled by another company
- does not control another company (unless they are qualifying subsidiaries)
For both SEIS and EIS, your company will only be eligible if it does not trade in any excluded activity, so be sure to check that your trading activities are not on the list.
There are also rules for the amount you can raise. For SEIS, UK startups can raise up to £250,000.
Previously the limit was £150,000, but HMRC has now increased the amount — you can now raise £250,000 SEIS. For EIS, UK companies can raise up to £12 million.
Can my startup use both schemes?
You can raise SEIS and EIS funding simultaneously, so long as you do it in the right order. Because SEIS is designed for early-stage businesses, you cannot raise under the EIS scheme and then return to claiming SEIS 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 reach the SEIS limit of £250,000.
How to get your advance assurance
Advance assurance is pre-approval from HMRC that your company is eligible for SEIS/EIS. Investors want a guarantee that they can get their tax relief before they invest — advance assurance gives them that guarantee.
To get advance assurance, you need to submit an application to HMRC along with supporting documentation. Once approved, HMRC will send you a statement saying the investment will likely qualify for tax relief. You can show this statement to investors.
The supporting documentation required for advance assurance is quite extensive. Financial forecasts and a three-year business plan must be included. And your company must satisfy HMRC that it has the potential to succeed while also posing a risk to your investors.
SEIS/EIS compliance certificates
As soon as you have completed your funding round and issued shares, you need to provide your investors with SEIS/EIS compliance certificates.
For SEIS
- fill out and submit the SEIS1 compliance statement along with supporting documents.
- receive SEIS2 form from HMRC. This is your company’s confirmation that you are SEIS-compliant.
- issue SEIS3 compliance certificates to investors so they can claim their tax relief.
For EIS
- fill out and submit the EIS1 compliance statement along with supporting documents.
- receive EIS2 form from HMRC. This is your company’s confirmation that you are EIS-compliant.
- issue EIS3 compliance certificates to investors so they can claim their tax relief.
Get in touch
If you think either of these schemes is right for your business, we are happy to help you with the planning process. Not sure whether claiming SEIS or EIS is the right move? Get in touch with us today.
