Guide to the Seed Enterprise Investment Scheme (SEIS)

Raising funding to get your business off the ground can be vital for many start-up owners.

Yet, without a previous track record of success, it can be a struggle to attract private investors.

As an early-stage business, investors may be uncertain of your venture’s potential.

The tax relief benefits offered through the Seed Enterprise Investment Scheme (SEIS), however, may give investors the confidence they need to work with you.

In 2020/21, £175 million was raised by 2,065 companies under SEIS.

Under the government-backed initiative, investing in an early-stage business may become a more attractive opportunity for private investors, helping start-up owners raise the funds they need to succeed.

What is the Seed Enterprise Investment Scheme?

Set up in 2012, SEIS is a government initiative that aims to encourage innovation and boost economic growth in the UK.

It is designed to help start-up companies raise the capital they need to grow from private investors buying shares in their business.

Under SEIS, private investors can receive the following incentives:

• up to 50% income tax relief on the amount invested, currently capped at £100,000 per annum
• no Capital Gains tax to pay on profits following the sale of the shares so long as the investor has held them for at least three years
• Inheritance tax relief of 100% on the value of SEIS shares if the shares have been held for two years.
• if the investment fails, the government offers loss relief which can be used to offset tax on other income
• if the investor has other investments which they decide to cash in to support a SEIS-qualified scheme, the capital gains on the initial investment is eligible for a 50% reduction in tax.

Changes to SEIS

In September 2022, the government announced that from April 2023, the amount that companies can raise under the Seed Enterprise Investment Scheme will increase by £100,000 to £250,000, and the gross asset limit will increase from £200,000 to £350,000.

The company age limit will increase from two to three years, and the annual investor limit will be doubled to £200,000.

What are the advantages of SEIS for a start-up?

SEIS can help you raise money in the early stages of your start-up business.

Start-up businesses can raise a maximum of £150,000 (increasing to £250,000 in April 2023) through SEIS investments.

This will:

• include any other de minimis state aid received in the three years up to and including the date of the investment
• count towards any limits for later investments through other venture capital schemes.

After this, you may be able to raise additional funds through Enterprise Investment Scheme (EIS) if eligible.

The money raised under SEIS must be spent within three years of the share issue and used on developing and growing the business.

Is my company eligible?

Your company can apply for the scheme if it:

• is established in the UK
• carries out a new qualifying trade
• has been trading for less than two years (increasing to three years in April 2023)
• does not have gross assets exceeding £200,000 at the time the shares are issued (increasing to £350,00 in April 2023)
• does not trade on a recognised stock exchange at the time of the share issue
• has less than 25 employees when shares are issued
• does not control another company unless that company is a qualifying subsidiary
• has not been controlled by another company since the date your company was incorporated
• is not a member of a partnership
• has not received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust.

Non-UK companies can still qualify for SEIS if they have a permanent establishment in the UK.

This means having either:

• a fixed place of business in the UK, such as an office, factory, or shop
• an agent based in the UK acting on the company’s behalf, who has the power to enter contracts on behalf of the company.

Excluded trades include property development, financing services, and leasing activities.

The government has more details about qualifying trades and company eligibility.

Is my investor eligible?

Before dealing with potential investors, you should consider if they qualify for SEIS.

Eligible investors must meet the following criteria:

• must be an individual
• must be a UK taxpayer
• cannot hold more than 30% of the company’s overall shares which would constitute a ‘substantial interest’ in the eyes of HMRC
• can’t be an employeeo or have a close relative as an employee.

While company employees are not eligible investors, there are no restrictions for company directors.

SEIS relief only applies to ordinary full-risk shares – you cannot offer an investor shares with additional rights built in.

How to apply for SEIS

To apply for SEIS you must provide HMRC with information about your company.

Amongst other items, the information HMRC requires includes:

• financial forecasts
• a business plan
• details of any previous investment from capital schemes.

A complete list of the documents required by HMRC can be found on the government website.

Advanced assurance

You can check with HMRC if an investment would meet SEIS conditions before applying.

Investors may be more willing to invest in your business if you have this advanced assurance.

To gain advance assurance, you must provide certain information to HMRC, including a copy of the latest accounts, a business plan, and details of how much you aim to raise.

Learn more about advanced assurance.