You can now raise £250K SEIS. But wait until July to do your SEIS Compliance

Good news:

• UK startups can now raise up to £250K in SEIS investment (up from £150K SEIS)
• you can raise SEIS for up to 3 years from when you first began trading (up from 2 years)
• investors can now invest up to £200K each in any one tax year (up from £100K)
• your company must have less than £350K in gross assets to qualify (up from £200K)

These changes went live on 6 April 2023.

Or did they…?

Here’s the full story, what to watch out for, what not to do, and how to take advantage of the SEIS changes now.

The story so far…

Back in 2022 the government announced increases to the SEIS limits – fabulous news for UK startups and angel investors. SeedLegals was the first to explain those changes back in Sep 2022, showing how you could use SeedFASTs with 6-month longstop dates to raise £250K SEIS starting back then.

Those SEIS changes were set to start on 6 April 2023… so in this article we’re jumping forward to today, when the changes are now live.

Well, sort of live…

The SEIS changes were included in the 2023 Spring Finance Bill, which was published in March 2023.

That bill isn’t law yet… it still has a way to go, you can track the progress here.

If you’re so inclined you can read the full text of the Finance Bill here – the SEIS changes are on page 29 of 478.

In short, the SEIS changes have come into effect on 6 April 2023… but only after the bill receives Royal Assent in July 2023. And, yes, that does seem a bit backwards.

So, what’s HMRC’s position?

Ultimately it’s HMRC that provides the SEIS/EIS certificates for investors so they can claim their tax relief. So what does HMRC say?

First up, they confirm that the SEIS changes will come into effect starting 6 April 2023. Interestingly, they also say that the changes will cost them £800K in IT and staff costs… but that’s another story.

But, as the EIS Association (the investment industry association) web site explains, “HMRC will not be able to provide advance assurance or approve SEIS1 submissions for the increased limits until the Finance Bill is substantially enacted and receives Royal Assent. This usually takes place in July.”

This means:

• HMRC will continue to give Advance Assurance and SEIS Compliance under the old rules until the new bill receives Royal Assent in July.
• From July onwards, you’ll be able to get Advance Assurance and SEIS Compliance under the new rules for shares issued from 6 April 2023 onwards.

What this means to you

1. You can now raise £250K SEIS, noting that the changes haven’t actually been passed by parliament so it’s possible, but unlikely, that something will go horribly wrong.
2. If you raised more than £150K SEIS, you’ll need to wait until July to do your SEIS/EIS Compliance.
3. HMRC will, for now, only give up to £150K in SEIS Advance Assurance (but that’s okay).

That sounds complicated! Keep reading for the details and what you need to if you’re raising SEIS investment now.

You’ll need to wait until July to do your SEIS Compliance

HMRC are saying that they need to wait until the Finance Bill gets Royal Assent in July before they will process SEIS Compliance applications under the new rules.

This means you can raise £250K SEIS now, but your investors will need to wait until at least July before you can do your SEIS Compliance (plus any HMRC processing backlog time) and they can get their SEIS certificates.

Is waiting until July to do the SEIS Compliance a problem? Not really, because investors still get their tax relief in the same tax year. At most you’ll need to fend off a few eager investors for a few months as they hassle you for their SEIS/EIS certificates – just point them to this article and you’re off the hook.

It’s important to note that once you’ve issued EIS shares, or done EIS Compliance, you cannot raise SEIS after that.”

“This means that if you’ve raised a mix of SEIS and EIS, do not do the EIS Compliance before the SEIS Compliance (i.e. wait till July to do both the SEIS and EIS Compliance), or HMRC may deny SEIS when you try to claim that later, and your SEIS investors will get EIS instead, which will make them unhappy.

You can still only get Advance Assurance for £150K SEIS

Until the Finance Bill gets Royal Assent in July, HMRC are only providing Advance Assurance for up to £150K – i.e. you won’t be able to tell investors that you have received Advance Assurance for £250K SEIS.

That sounds like a problem, but actually we don’t think it is, other than for a few particularly pernickety investors. Here’s why:

Firstly, Advance Assurance isn’t legally required, it’s just a comfort letter for investors. You can happily raise SEIS investment without getting Advance Assurance at all. (Most investors will ask if you have Advance Assurance and only invest if you do, which is why pretty much every startup gets Advance Assurance before they talk to investors. But that’s just an investor habit, not a legal requirement.)

Once you’re able to tell your investors that you have obtained Advance Assurance, few will care how much Advance Assurance you have – all they need to know is that you have it. So as a practical matter, whether you apply for £150K or £250K SEIS Advance Assurance, once you’ve been approved you can happily carry on with your £250K SEIS raise, and few investors will care that you received Advance Assurance for a lesser amount.

Adapting your Advance Assurance strategy

You’ll want to keep these changes in mind when devising your optimal SEIS/EIS Advance Assurance strategy:

Even if you plan to raise just SEIS, we encourage you to get SEIS and EIS Advance Assurance at the same time. It’s zero extra cost and zero extra effort to get EIS Advance Assurance at the same time you get your SEIS Advance Assurance, and then you’re all set to keep raising hundreds of thousands more in EIS in the same round or later, without needing to do another Advance Assurance application later.

Which is why when you do your Advance Assurance application on SeedLegals, even if you’re planning to raise, say, £150K, we would encourage you to apply for £200K in SEIS+EIS Advance Assurance. It’s just one checkbox click and you’re sorted with EIS as well.

With these new SEIS changes, since you can’t actually get £250K in SEIS Advance Assurance now, if you were planning to raise £250K SEIS, rather than applying for £150K SEIS Advance Assurance, we would recommend that you to apply for £250K (or more) in SEIS+EIS Advance Assurance. That means you’ll get Advance Assurance for SEIS and EIS, and it makes no difference what fraction is SEIS vs. EIS.

When you do your Advance Assurance application, HMRC require you to give details of intended investment for a substantial fraction of the amount of SEIS/EIS Advance Assurance that you’re applying for. For example, if you’re applying for £300K in SEIS+EIS Advance Assurance, you would need to provide details of potential investors for at least, say, £100K. Without that, HMRC may reject your application as speculative, and you’ll have to come back later when you’ve found some potential investors.”

“This means that the total amount of Advance Assurance you can apply for will be limited by the amount of investment you’re able to get intention for ahead of your Advance Assurance application (we explain all this in detail when you do your Advance Assurance on SeedLegals).

Conclusion

You should be able to go ahead and raise £250K SEIS now, noting the caveats above and that it’s not totally a done deal until the bill gets Royal Assent in July.

Disclaimer

Update 6 April 2023: These SEIS changes are in the Finance (No. 2) Bill which is currently going through Parliament. You can read more in the policy paper and follow the progress of the Bill.

Until Parliament approves the changes and HMRC confirms the exact details (for example, that the new rules will apply to shares issued on or after 6 April 2023 even if the funds were received before then) all the above is not legal advice.

We expect the Finance (No.2) Bill to be given Royal Assent around July 2023. The changes to SEIS could be changed or cancelled before they become law – but we believe this is unlikely.

You can talk to investors and make plans based on the above, but there’s no guarantee that the SEIS changes will be made, or that the changes will be made exactly as described in this post. We’ll update this post when the SEIS changes become law and HMRC updates their website.

Talk to an expert

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