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SEIS and EIS: The schemes that attract investment for businesses

Updated: Aug 26, 2022

Innovation funding support within the UK

The UK, and London in particular, is one of the world’s leading innovation hubs. Our progress within research and development (R&D) is helped along by a number of government-run initiatives that were implemented to financially support founders and investors.

This blog is going to focus on two (surprisingly under-subscribed) schemes that can turn your business into an attractive investment opportunity - SEIS and EIS.

🌱 The Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) is a government initiative in the UK, which focuses on supporting very young companies. Its purpose is to encourage funding bodies to provide them with capital by rewarding private investors with a substantial tax deduction.

This financial incentive acts as a safety net for providing ‘high-risk’ companies with funding.

Under SEIS, an individual can invest up to £100,000 (per financial year) and in turn receive a 50% tax income break!

An added benefit of SEIS is that, after three years, the investor gains exemption from capital gains tax on any profits that arise from the sale of shares.

SEIS-approved businesses suddenly lose half of the capital risk that comes with investing in them, but keep hold of the huge ROI potential. Naturally, this is a game-changer for potential investors.

📈 The Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme (EIS) is the second branch of this government initiative, which instead focuses on medium-sized businesses that are further established.

EIS allows an individual to invest up to £1 million (per financial year), and then receive a 30% tax relief.

EIS candidates are deemed lower-risk than that of SEIS, so EIS investors are lent more financial security from the get-go. This explains the difference in the available tax relief.

Just like SEIS, the investor here is exempt from capital gains tax on any profit arising from the sale of the shares, after three years.

For both the SEIS and EIS schemes, there’s zero inheritance tax to pay on shares held for a minimum of two years. And if shares are sold at a loss, the investor may offset the loss against their capital gains tax.

🏆 Which companies are eligible?

You might be thinking – why doesn’t every capital-seeking business become SEIS/EIS approved?

Well, a huge chunk of founders simply aren’t aware of the opportunity! In truth, most businesses do qualify for SEIS & EIS investment. An easier distinction to make is to highlight those that cannot qualify:

You can’t access SEIS or EIS funding if:

  • Your business deals in land or commodities

  • Your business is involved in banking, insurance or money-lending of any kind

  • You provide legal or accounting services

  • You’re involved in property development

  • You’re involved in generating and exporting electricity

Top tip! Companies are only excluded from SEIS & EIS fundraising if over 20% of their trade activity consists of ‘excluded activity’.

💰 What can businesses use EIS & SEIS investment for?

If your company raises funds through SEIS or EIS investment, the capital you receive must be used for ‘qualifying business activity’.

The UK government defines this as:

  • A qualifying trade

  • Preparing to carry out a qualifying trade (within the next two years)

  • Research and development (R&D) that’s expected to lead to a qualified trade

In addition, the money raised must:

  • Be spent within 2 years of investment (if it takes your company more than two years to begin trade - money must be spent by the date you started trading)

  • Not be used to buy all or part of another business

  • Pose a risk of capital loss for the investor

  • Be used to grow or develop your business

💸 How much can a business raise under EIS and SEIS?

SEIS funding allows a business to raise up to £150,000.

EIS funding permits investment of up to £12 million per company.

If your company has received any de minimis state aid in the last three years, you may not be able to receive the full amount. If this is the case, the sum of state aid will count towards the limit for investment.

Importantly, where a funding round involves both SEIS and EIS funding, the SEIS shares must be issued prior to the EIS funds. This means that a company needs to issue SEIS share certificates first, and then wait at least one day before issuing any EIS shares.

💼 SEIS and EIS: Rules for Investors

Under SEIS, an individual can invest up to £100,000, per financial year.

Under EIS, an individual can invest up to £1 million, per financial year.

Shares issued under SEIS & EIS must be ordinary shares, with no preferential rights attached.

Strict guidelines are in place so that an investor under SEIS or EIS cannot be in possession of more than 30% of the company’s shares, nor can they be associated with the company in terms of employment.

Only after shares are issued can an investor be given a Director position on the board, so it’s vital that an investor is issued their shares before this move is made!

📑 Applying for SEIS and EIS Advance Assurance

Investors will need proof that your company is eligible for SEIS or EIS funding, which is done through obtaining Advance Assurance from HMRC. Gaining Advance Assurance requires the help of a experienced qualified accountant, preferably with expertise in capital investment.

This is because HMRC requires a detailed report of your proposed investor, a comprehensive business plan featuring financial forecasts, a copy of your latest accounts, a cover letter, and so on.

Our accounting partner, Jump Accounting, specialises in growth-focused accounting for UK startups and SMEs. They offer SEIS and EIS Advance Assurance as a stand-alone service, or as part of their flexible accounting packages.

Here’s what a client of theirs had to say about their Advance Assurance experience with Jump Accounting:

The team at Jump Accounting supported me with our HMRC SEIS/EIS Advance Assurance and I could not recommend them enough. Their work saved us so much time and we got approval after 4 days - which is unheard of! A big thank you to Matt and Ashwini for their timely communication and support with all the paperwork and my questions.”

Click here to find out more about their personalised accounting services, or to enquire directly into SEIS / EIS Advance Assurance.

🚀 R&D Tax Credits

An alternative government-led initiative offering support to startups and SMEs - which you’ve probably heard us mention before - is R&D Tax Relief.

Innovative companies can access R&D Tax Relief by filing annual R&D Tax Credit claims. Depending on the size of your business, and which scheme you file under, R&D-intensive companies can reclaim up to 33% of their yearly expenditure.

It’s no secret that this is a huge benefit that can provide transformative reinvestment, but strangely, and similarly to SEIS/EIS, around 90% of eligible businesses are still not claiming!

This is because R&D Tax Credits are extremely complex, and time-poor founders are too busy with running their business to delve into the specialist information that HMRC requires.

We want to change this statistic by not only raising awareness about R&D Tax Relief, but also by completing and submitting successful and maximised R&D claims on behalf of eligible UK companies.

Enquire into our market-leading R&D Tax Credit service to schedule a free claim consultation today.


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