Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) is a government initiative for business startups, which is designed to help startups get investment. It works by offering tax relief to potential investors. SEIS is designed to allow a company to raise money at the early stage of its existence, where investment is risky and hard to obtain.

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SEIS is a scheme that works by offering tax relief for investors buying new shares in the business. The incentives are as follows:

 

  1. Potential investors can claim 50% of their investment back as income tax relief. For example, if an investor bought shares for £20,000, they would be able to claim back £10,000 from income tax.

  2. If the investor sells the shares after having owned them for over three years, they will be exempt from capital gains tax.

  3. If the investor has owned the shares for over 2 years, the shares will not be subject to Inheritance Tax.

  4. If an investor makes a loss on their investment, they can offset this against income tax. The relief they can get is equivalent to the income tax they pay. For example, if an investor pays 45% income tax, they can get 45% of investment loss back. Therefore, if an investment of £10,000 reduces to £5,000, an investor in this tax bracket will be able to claim £2,250 off their income tax.

  5. Investors can get capital gains reinvestment relief. This means they can claim up to 50% of capital gains tax already paid for other non-SEIS investments, if they reinvest this money in an SEIS.

  • The company should not have more than £200,000 of gross assets when shares are issued.

  • The company cannot have been trading for more than 2 years.

  • The company must have less than 25 full-time employees.

  • The company can only raise a maximum of £150,000 through the SEIS scheme.

  • Investors can only invest a maximum of £100,000 per year under the SEIS scheme.

  • Investors must be UK taxpayers.

  • Investors must hold onto the shares for at least 3 years.

  • Investors must not be connected to the company they are investing in (ie be an employee).

For it to qualify as an SEIS investment, the money raised must be used for a qualifying business activity. This could be:

 

  • A qualifying trade (these are defined on the government website).

  • Preparing to carry out a qualifying trade.

  • Research and development for a qualifying trade.

 

The money raised by the new share issue must also:

 

  • Be spent within 2 years

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

  • Be used to grow or develop your business

While SEIS may not benefit the company directly, it provides a great incentive for investors looking to buy new shares in the company. This will help build capital to help your business as it begins to trade.

As a startup you can get advance assurance that you are eligible for SEIS funding. This is useful so that investors know that you can definitely offer these tax breaks to the investors. To get advance assurance you need to submit an application to HMRC.

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