{"id":18234,"date":"2019-10-22T11:12:36","date_gmt":"2019-10-22T10:12:36","guid":{"rendered":"https:\/\/seedlegals.com\/resources\/what-is-seis-eis-an-essential-read-for-uk-startups\/"},"modified":"2023-04-07T12:00:00","modified_gmt":"2023-04-07T13:00:00","slug":"what-is-seis-eis-an-essential-read-for-uk-startups","status":"publish","type":"post","link":"https:\/\/seedlegals.com\/ie\/resources\/what-is-seis-eis-an-essential-read-for-uk-startups\/","title":{"rendered":"What are SEIS & EIS? The essential guide for UK startups"},"content":{"rendered":"

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are two of a number of UK government initiatives<\/a> which encourage innovation by granting private investors a significant tax break when investing in early stage, \u2018high-risk\u2019 companies.\u200d<\/strong><\/p>\n

If you’re looking to raise under SEIS\/EIS you can easily apply for SEIS\/EIS Advance Assurance on SeedLegals<\/a>.<\/p>\n

Questions? Book some time<\/a> in with one of our SEIS\/EIS experts and we’d be happy to help.<\/em><\/p>\n

SEIS vs EIS: What\u2019s the difference?<\/strong><\/h2>\n

The two schemes are similar, but have some important differences.<\/p>\n

SEIS is focused on very early-stage companies, and allows an individual to invest up to \u00a3100,000 per tax year and to receive a 50% tax break in return. The investor will also benefit from a capital gains tax exemption on any profits that arise from the sale of shares after three years.<\/p>\n

EIS, on the other hand, focuses on medium sized startups. It allows an individual to invest up to \u00a31 million per tax year and to receive a 30% tax break in return. As with SEIS, the investor will also pay no capital gains tax on any profit arising from the sale of the shares after three years.<\/p>\n

With both SEIS and EIS, there is no inheritance tax to pay on shares held for at least two years. Finally, if shares are eventually sold at a loss, the investor may offset the loss against their capital gains tax.<\/p>\n

What types of companies are eligible for SEIS & EIS?<\/strong><\/h2>\n

Most trades do qualify for SEIS and EIS funding, but a number are excluded from the schemes<\/a> entirely. Excluded trades include those dealing in land or commodities, those involved with banking, insurance or money-lending, those providing legal or accountancy services, those involved in property development and those generating and exporting electricity. There will inevitably be some grey areas that may need further analysis. A useful point to note is that companies are only excluded from raising money under SEIS and EIS, if a \u2018substantial\u2019 element (+20%) of their trade activity consists of the excluded activity.<\/p>\n

There are also a number of tests<\/a> \u00a0which must be satisfied before you can confidently offer your investors SEIS or EIS.<\/p>\n

In addition to these, check out a number of lesser known ways companies can qualify for SEIS\/EIS<\/a>.<\/p>\n

What can your company use the SEIS and EIS investment for?<\/strong>\u200d<\/h2>\n

In order to accept SEIS or EIS investment, the funds raised must be used for a qualifying business activity<\/a>. They must be used solely to promote the growth and development of the company, such as hiring new employees, developing the product or marketing. \u200d<\/strong><\/p>\n

How much can a company raise under SEIS & EIS?<\/strong>\u200d<\/h2>\n

A company can raise a maximum of \u00a3150,000 in SEIS funding<\/a>, whilst a maximum of \u00a312 million per company<\/a> can be raised in EIS funding. You may not be able to receive the full amount if your company has received any de minimis state aid in the last three years, the cost of which will count towards the limit for investment.<\/p>\n

Where a funding round involves both SEIS and EIS funding, it is important that the SEIS shares are issued before the EIS funds<\/a>. In practice this means a company needs to issue SEIS share certificates first, or date them appropriately, and then issue the EIS shares at least one day after. \u200d<\/strong><\/p>\n

How much can an investor invest under SEIS & EIS?<\/strong>\u200d<\/h2>\n

Any one individual can invest a maximum of \u00a3100,000 under SEIS per tax year, whilst individuals investing in EIS can invest no more than \u00a31 million per tax year. Shares issued under the SEIS and EIS schemes must be ordinary shares, with no preferential rights attached.<\/p>\n

There are also strict criteria<\/a> that an individual investing under SEIS or EIS must not hold more than 30% of the company\u2019s overall shares, nor can they be connected to the company in a Director or Employment capacity. An investor may be given a Director position on the board after the shares are issued but not before, and it is therefore important that an investor is issued their shares before<\/em> they\u2019re appointed as a Director. \u200d<\/strong><\/p>\n

How to apply for SEIS & EIS Advance Assurance<\/strong><\/h2>\n

\u200d\u200d<\/strong>Most investors will require advance assurance that your company is eligible for SEIS or EIS funding. You should therefore submit an application to HMRC before you start offering investors SEIS or EIS investment opportunities; this is called obtaining advance assurance from HMRC.<\/p>\n

When applying for advance assurance, HMRC will require the details of at least one proposed investor<\/a>. HMRC will also require your business plan and 3-year financial forecast, a copy of your latest accounts (if available), a cover letter, \u00a0and various other documents outlined in the video below.<\/p>\n

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