What is SEIS?

So, SEIS is the Seed Enterprise Investment Scheme. It’s a government backed scheme to help small start-up businesses raise funds and get investment on board. There are tax breaks available if you invest into an SEIS-qualifying company. This helps make investing into start ups more appealing, and gives some much needed life-blood right at the grass roots level.

Which companies would qualify for SEIS? You must be established in the UK, under two years old, not listed on any major stock exchange, must be within a qualifying trade (full list here), must have less than 25 employees and less than £200,000 in gross assets.

How much can a company raise? The maximum amount in the Company lifetime is £150,000

Who can invest in an SEIS eligible start up? So you must hold the shares for minimum 3 years, the Company has to remain SEIS compliant for that period, you must be 18 or over, you can’t use it for tax avoidance, maximum investment through SEIS is £100,000 per annum, all shares must be bought in cash and paid in full, and finally the investor can’t be employed by the Company.

How does it work? There a few options – you can ask HMRC in advance whether your Company and the shares you are planning to issue will qualify. This is called ‘advanced assurance’. You’ll need to complete an application and provide various documents to HMRC including: How much you plan to raise, a business plan and financial forecast, latest accounts if available, details of trading and activities to be carried out, and various company legal docs.

If you qualify HMRC will send you a statement which you can show your investors.

If you go ahead with the investment, you’ll have to submit a compliance statement to HMRC. You can go straight to this step without the advanced assurance – and you would need to submit similar info. If you have gone down the advanced assurance route you just need to make sure you communicate any changes to HMRC.

You need to have been underway for 4 months, and have spent at least 70% of the amount raised before you submit the Compliance statement.

Assuming all successful – HMRC will send the certificates to give to your investors.

What are the tax breaks? There are various tax reliefs the investor can take advantage of:

  • Income tax relief of 50% of the amount invested (depends on your tax bracket)
  • Exemption from Capital Gains on earnings from the shares
  • Profits realised within 3 years are exempt form capital gains if reinvested into SEIS
  • Loss relief if the Company fails

What’s next? Thinking your business may qualify and looking to raise investment? Have a chat to the PennyBooks team to run through your options – it’s definitely worth considering SEIS if your Company qualifies! Drop us a line at hello@pennybooks.io

Elspeth Vincent