Funding GuidesNew SEIS Rules: You now need to include at least one investor name and address in your SEIS Advance Assurance application
Anthony Rose
CEO & Founder at SeedLegals
January 25, 2018

The government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) programmes have been a huge success. At SeedLegals we can see that they fuel the UK’s early-stage startup economy, with the vast majority of £500K and lower funding rounds being powered by angel investors and syndicates looking for SEIS or EIS tax benefits. Many of those investors will only make their investments after the company has obtained confirmation from HMRC that the company is eligible for SEIS or EIS. That’s known as Advance Assurance. It’s clearly proving hugely popular, with HMRC now taking 8 weeks or more to process these applications. 

To try to reduce their workload and reduce processing times for this important pre-approval document, starting early 2018, every Advance Assurance application must now include the name and address of at least one potential investor or the application will be rejected. Applications which do not contain a least one investor will now be deemed as ‘speculative investments’ and rejected. HMRC has introduced this change to reduce the demand for the Advance Assurance service. 30% of approved applications are speculative and don’t result in investment, and HMRC are aiming to limit applications only to those companies which have demonstrated investor interest — they’ve put together a helpful summary of their reasoning (PDF). 

What this means for startups 

While the goal of reducing application approval times is laudable, this change can create a Catch-22: the startup needs to know who their investors will be before they can obtain Advance Assurance, and investors will often only commit to investing after the company has obtained their Advance Assurance! Previously you could apply for Advance Assurance many months before your funding round so you’d have everything in place before you approached investors, but you’ll now need to have at least some level of interest from specific investors before you can lodge your application. With this change being relatively new, many startups and even accountants aren't aware of these changes and their Advance Assurance applications would be rejected. 

But, don't worry, HMRC are aware of the Catch-22, and so they only want the name and address of one or more potential investors - they're not in any way committing to invest, and you don't need to specify up front how much they intend to invest.

If you're doing a crowd round...

If you're doing a crowdfunding round then instead of needing to provide the name and address of at least one investor (which you may not know ahead of your crowd campaign going live) it's fine to include instead a signed agreement with your crowdfunding platform. We provide one-click support for Crowdcube rounds, so if you're doing your SEIS/EIS Advance Assurance application on SeedLegals for an upcoming Crowdcube round, just select that and we'll generate the Crowdcube engagement letter for you, ready for you to get signed by your Crowdcube contact, easy!

Don't forget your Business Plan

HMRC now also requires SEIS/EIS Advance Assurance applications to include a 3 year business plan "of the same level of detail that you would send to your investors". Basically, if it's a £150K SEIS round a page or two in your slide deck showing P&L and revenue by year for the next 3 years should be fine, if you're raising £2M you would likely need more. So be sure to include sufficient detail on your business growth to satisfy this requirement.

SeedLegals is here to help

SeedLegals helps you deal with these change to the rules, including the even newer Risk To Capital requirement, and help you get your Advance Assurance application approved.

SeedLegals has launched an SEIS Application Portal where you can get investment ready, enter the details of your potential investors and complete your SEIS Advance Assurance application.

The SeedLegals system will import the potential investor information from your upcoming funding round and automatically generate the HMRC SEIS application form and a cover letter populated with all the information required, including the investor details, ready to send to HMRC. Even better, the SeedLegals team can review your application to make sure it’s correct, so you don’t lose weeks following an HMRC rejection. Once your Advance Assurance has been granted (if you still want to apply for Advance Assurance given the recent changes, rather than just crack on with your funding round), then you’re all set to complete your funding round dramatically faster and cheaper than using a law firm. SeedLegals lets you build your Term Sheet, Shareholders Agreement, Articles and all the other documents needed to close your round. The documents created by the platform are designed to be SEIS and EIS compatible so your investors can be assured that they’ll get their SEIS / EIS benefits. 

Following the round, you can even automatically generate SEIS1 and EIS1 forms, and investor certificates.

Help spread the word

Founders need to be aware of these changes before submitting their Advance Assurance applications, and get at least some investors speculatively on board so that they’re able to put some names and addresses to their Advance Assurance applications. Investors will require a leap of faith on their part to either soft-commit to an investment and wait 6-to-8 weeks for that Advance Assurance to come through, or just forgo Advance Assurance. It’s not legally required, it’s purely there for investor comfort. Then they can just get on with making that investment in a company they believe in, and work with the company to claim the SEIS and EIS benefits later.

And for our part, we’ve contacted HMRC to discuss how, by providing them with standardised Advance Assurance applications complete with a pre-checked documentation pack and pre-approved Articles of Association wording (particularly the all-important Liquidation Preference provisions), we can help bring those approval times down to days, not weeks. Which would be good for all. Please share this article widely so everyone is aware of these changes.

Anthony Rose
CEO & Founder at SeedLegals
January 25, 2018