What SEIS is
The Seed Enterprise Investment Scheme is a UK government scheme, run by HMRC, that gives tax relief to people who invest in very early-stage companies. The point of it is to make backing an unproven company less painful, because the relief cushions the loss if things do not work out.
SEIS sits at the earliest end of the funding ladder. It is usually the scheme in play at pre-seed, and often the first thing an angel investor will ask about. Its bigger sibling, EIS, takes over once a company has outgrown the SEIS limits.
What a company needs to qualify
- No more than £250,000 raised through SEIS. This is a lifetime limit, not an annual one.
- Gross assets of no more than £350,000 when the shares are issued.
- The trade must not have been carried out for more than 3 years.
- Fewer than 25 full-time equivalent employees when the shares are issued.
Advance assurance is HMRC confirming in advance that your share issue is likely to qualify. It is not compulsory. Investors routinely ask to see it, because without it they are taking your word for it.
What the investor gets
- 50% income tax relief on up to £200,000 invested in a tax year.
- Shares must be held for at least 3 years, or the relief can be withdrawn.
- Reinvestment relief, where up to 50% of a capital gain put into SEIS shares can be treated as exempt from capital gains tax, capped at £100,000 of exemption.
- Disposal relief, meaning no capital gains tax on any gain from SEIS shares held the full 3 years, provided the income tax relief was received in full and never withdrawn.
How SEIS differs from EIS
- SEIS is for younger, smaller companies. EIS allows companies that are further along.
- SEIS gives the investor 50% income tax relief. EIS gives 30%.
- An investor can put up to £200,000 a year into SEIS, against £1 million for EIS, or £2 million if at least £1 million goes into knowledge-intensive companies.
- A company can raise up to £250,000 through SEIS in total. The equivalent EIS limits are higher.
Companies commonly use SEIS for their first raise and move to EIS for the next one. The two can be combined, but SEIS shares must be issued first.
