Seed Enterprise Investment Scheme: Company overview
What is SEIS?
SEIS is a government scheme designed to encourage investments into startups by giving generous tax breaks to investors
How much can be claimed?
The startup can receive a maximum of £150,000 of SEIS investment during its lifetime.
If it receives more, then the excess won’t be eligible for investors to claim tax breaks.
How does a company qualify?
The key criteria for a company to qualify are:
- is a company incorporated in the UK
- traded for less than 2 years or are pre-trading
- trading activity isn’t ineligible
- has gross assets upto £200,000 at the time of issuing SEIS shares
- isn’t listed on a stock market and has no arrangements already in place to become a quoted company or a subsidiary of one
- isn’t a member of a partnership
- isn’t a subsidiary of another company
- has less than 25 full time employees at the time of issuing the SEIS shares
- hasn’t already received EIS or VCT investment
- has received less than £150,000 de minimis State Aid in the last 3 years
The shares must be ordinary shares with no preferential rights and the share issue must be for cash consideration.
The process: advance assurance
As there are a lot of criteria involved, investors may be worried if a company qualifies for SEIS so may ask for advance assurance.
This is a letter from HMRC that states that a company would qualify for SEIS, based on the application.
If you are considering raising investment in future you can apply for advance assurance and show the HMRC letter to potential investors.
The process: issuing shares
The company must have a bank account open in its own name to receive the investment, either directly from the investors or via its lawyers. Some companies were reported as having their SEIS claims rejected as they received the money into their personal accounts.
The investors should also sign a subscription letter to state that the money they are giving to the money isn’t a loan and is for the purpose of a share issue.
The company needs to receive the money first and check that the money is in the bank (or lawyer’s client account) before issuing the shares
The process: Claiming SEIS
Once the company has been trading for at least 4 months and 70% of the SEIS investment has been spent, form SEIS 1 needs to be submitted to HMRC. If advance assurance has been obtained, the claims process is generally easier. If not, then more information needs to be submitted with the claim form.
HMRC will then issue SEIS certificates for the company to pass on to investors.
The investors can then obtain tax relief from HMRC.