EIS rules and benefits for investors explained
Invest in EIS-eligible companies to get generous tax relief. We set out the rules and benefits for investors.
Your Advance Assurance does not have any particular expiry date. It will lapse if there are any changes to your company’s situation that make it no longer match the criteria for SEIS/EIS eligibility.
When SEIS/ EIS Advance Assurance can expire
Remember HMRC SEIS/EIS Advance Assurance is not a guarantee that your investment will later qualify, just an indication that if nothing changes in the company, and the funding round deal documents are in line with the documents shown to HMRC when you did your Advance Assurance application, then it should. Advance Assurance will also not tell you if your investors meet the conditions of the venture capital scheme. It helps to think of Advance Assurance more like an assurance that your investment is not disqualified.
When it comes to SEIS/ EIS Advance Assurance, there are some time limits to be mindful of – if you exceed these limits, your investment will be disqualified from the scheme and you will lose your Advance Assurance:
- Your company must have been trading for less than 2 years up until the time you issue SEIS shares, and less than 7 years up until the time you issue EIS shares.
- If you qualify as a Knowledge Intensive Company (KIC) your investment will get a time extension in that you qualify for EIS for 10 years from the start of trade date (instead of the 7 years with SEIS).
On the points above, it is interesting to note that if a company has raised some EIS in the first 7 years (10 years for KICS) of trading, they can continue to raise EIS for as long as they like until they reach a maximum of £12m (£20m for KICs), and no more than £5m (£10m for KICs) in any one 12 month period.
If your company pivots, your time-limit increases
Also, a company beyond its SEIS/EIS time limit can reset the clock by starting a new business activity that HMRC will consider as a new startup for the purposes of the scheme. Find out more about this and other little known facts about SEIS/ EIS tax relief here.
Be mindful of potential delays in receiving Advance Assurance approval
Another trend to watch out for is an increase in the time it takes for companies to get responses from HMRC regarding their Advance Assurance applications. This is because of new investment criteria that were included in the process in 2018 such as the need to provide an investor’s name and address, a business plan and evidence that your investment includes a risk to capital condition. Luckily, we have found that people who apply through SeedLegals are getting responses in 2-3 weeks and in some cases in just a couple of days!
Questions, comments or feedback?
Feel free to reach out to us directly! We’ve seen hundreds of SEIS / EIS applications and can give our customers a detailed review of their Pitch Deck.
If you’re already using SeedLegals you can apply for SEIS/ EIS Advance Assurance here.
Advance Assurance for other tax relief schemes
If you are looking for more info on the Social Investment Tax Relief (SITR) and Venture Capital Trust (VCT) schemes, you can follow the links to their respective HMRC pages.
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