Raising investment is a crucial step for many UK startups and small businesses. The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer powerful tax relief incentives to encourage investors, making it easier for companies to attract funding. In fact, over £2 billion was invested under EIS and SEIS schemes in 2023/24, highlighting their significance in the UK entrepreneurial ecosystem.
| Feature | SEIS | EIS |
|---|---|---|
| Maximum investment per investor per tax year | £100,000 | £1,000,000 (up to £2,000,000 if invested in knowledge-intensive companies) |
| Income Tax relief | 50% | 30% |
| Capital Gains Tax exemption on disposal | Yes, if shares held for at least 3 years | Yes, if shares held for at least 3 years |
| Loss relief against income tax | Yes | Yes |
| Company age limit | Less than 2 years old | Less than 7 years old (10 years for knowledge-intensive companies) |
| Company size limit | Fewer than 25 employees | Fewer than 250 employees |
| Gross assets limit | £200,000 | £15 million |
What Are SEIS and EIS?
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are government-backed initiatives designed to help smaller, early-stage companies raise equity finance by offering attractive tax reliefs to investors. Both schemes aim to reduce the risk of investing in startups and growing businesses, thereby encouraging investment and supporting entrepreneurship across the UK.
SEIS generally targets very early-stage companies looking to raise up to £150,000, whereas EIS caters to somewhat more established small businesses seeking larger sums, up to £5 million annually.
Tax Reliefs for Investors
One of the key attractions of SEIS and EIS is the range of tax reliefs investors can claim, reducing their financial risk. These reliefs make investing in small businesses more appealing, which in turn helps companies to secure funding.
Under SEIS, investors can claim 50% income tax relief on investments up to £100,000 per tax year. EIS offers 30% income tax relief on investments up to £1 million, or £2 million if investing in knowledge-intensive companies. In addition, both schemes provide exemption from Capital Gains Tax (CGT) on any profits made when the shares are sold, provided the shares have been held for at least three years.
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*T&Cs apply. Affiliate link.Eligibility Criteria for Companies
Not every company can benefit from SEIS or EIS. To qualify, companies must meet specific criteria set by HMRC to ensure that the schemes support genuine small business growth.
For SEIS, companies must be less than 2 years old and have fewer than 25 full-time employees. The company’s gross assets must be £200,000 or less at the time of the share issue.
EIS eligibility is broader but still restrictive. Companies must have fewer than 250 full-time employees (or 500 for knowledge-intensive companies), and gross assets must not exceed £15 million immediately before the share issue. The company must be less than 7 years old (or 10 years for knowledge-intensive businesses) and carry out a qualifying trade.
Qualifying Trades
Both SEIS and EIS exclude certain trades from qualifying. Examples include dealing in land or commodities, financial activities, legal or accounting services, and coal or steel production. This ensures that the schemes target businesses likely to contribute to economic growth and innovation.
How to Apply for Advance Assurance
Before seeking investment, companies can apply to HMRC for Advance Assurance, a non-binding indication that they meet SEIS or EIS requirements. This can reassure potential investors that their investment will attract tax relief.
The application to HMRC should include detailed information about the company, its trade, finances, and the proposed share issue. It is advisable to submit this before raising funds to avoid delays or complications later.
HMRC usually responds within 6 to 8 weeks. If approved, the company can include a copy of the Advance Assurance letter in its investor documentation.
- Prepare a comprehensive business plan and financial projections
- Complete HMRC’s SEIS or EIS Advance Assurance form
- Include details of the company’s trade, structure, and fundraising plans
- Submit the application via GOV.UK or by post
- Await HMRC’s response (usually within 6-8 weeks)
Post-Investment Steps and Claims
After the investment is made, companies must issue compliance certificates (SEIS3 or EIS3 forms) to investors. These certificates allow investors to claim their tax reliefs through their self-assessment tax returns.
Companies must submit compliance statements to HMRC within seven months of the share issue date. Failure to comply may result in investors losing their tax reliefs.
It is essential for companies to maintain accurate records of investments and ensure compliance with all scheme conditions throughout the holding period, which is typically three years from the share issue.
Key Takeaways
- SEIS and EIS offer significant income tax reliefs (50% and 30% respectively) to investors, helping businesses attract funding.
- Companies must meet specific age, size, and trade criteria to qualify.
- Applying for Advance Assurance from HMRC before fundraising can increase investor confidence.
- Compliance post-investment is crucial to protect investors' tax relief claims.
- Both schemes provide CGT exemption if shares are held for at least three years.
Further Reading
For more on managing your business finances and tax obligations, see our Corporation Tax Guide and Sole Trader vs Limited Company comparison.
Can a company claim both SEIS and EIS funding?
Yes, a company can raise funds under SEIS and then later under EIS, but not simultaneously for the same shares. Typically, SEIS is used for very early funding rounds, followed by EIS for subsequent rounds once the company grows.
What happens if the company stops trading during the relief period?
If the company ceases to carry on a qualifying trade or disposes of assets within three years, investors may lose their tax reliefs, and HMRC may require repayment of relief claimed.
Can investors claim loss relief if the company fails?
Yes, if the investment results in a loss, investors can offset the loss against their income or capital gains, reducing their overall tax bill and mitigating the investment risk.
Official Sources
* GOV.UK: Set up a business · * HMRC: Income Tax rates · * HMRC: Corporation Tax · * HMRC: VAT registration