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February 7th 2020

Advance assurance on EIS and SEIS schemes

Before raising money under EIS or SEIS, you can ask HMRC if they agree that the proposed investment will qualify. This is known as "advance assurance".

Investors will generally consider this a prerequisite for investing, so using an experienced accountant to guide you through the process is sensible, as it is better to spot any potential problems as soon as possible and the qualifying condtions are very stringent.

The advance assurance application form needs to be completed and HMRC will require additional information with the application, this varies slightly from scheme to scheme, but in all cases they will require details of:

  • the amount you hope to raise
  • the business plan and financial projections
  • the latest accounts (if available)
  • which company will use the investment (if you are operating a group)
  • the planned trading and activities, and how much you intend to spend on each one
  • details of amounts previously raised under venture capital schemes
  • the memo and articles (and any planned changes thereto)
  • the register of members
  • any prospectus (or similar) that will be presented to potential investors
  • any other agreements between the company and shareholders
  • a completed checklist for the scheme you are applying for, EIS or SEIS
  • any other documents to show the qualifying conditions are met

Since March 2018, applicants also have to show that they meet the "risk to capital" condition - there are two parts to this, firstly they need to demonstrate that the company being invested in has long term plans for growth; secondly, the proposed investment must carry a significant risk that the investor wll lose more capital than they gain as a return (including any tax relief).

The risk to capital tests are somewhat subjective, but HMRC makes it clear in its manual that capital preservation strategies designed to protect the venture scheme investors or give them a preference over other investors will be closely scrutinised.

What happens next

HMRC will write with their decision. If advance assurance is given, they will provide a statement that you can show to prospective investors, this gives investors a degree of comfort that the investment may qualify for the EIS or SEIS scheme. That is not the end of the process however.

Once the investment has been made (assuming it is made), you will need to send HMRC a compliance statement, EIS 1 or SEIS 1, confirming that the investment has been made in accordance with the rules of the relevant scheme. If any of the circumstances detailed in the advance assurance application have changed, you must tell HMRC about this as well. Again it is strongly advisable to use your accountant to guide you through the process.

The compliance statement cannot be submitted to HMRC until your company has been trading at least four months (or alternatively, in the case of SEIS, until it has spent at least 70% of the money raised).

If HMRC is satisfied with the compliance statement, they will issue form EIS 2 or SEIS 2 with an authorisation code, authorising the company to issue EIS 3 or SEIS 3 certificates to investors. HMRC will also send the company the EIS 3 or SEIS 3 certificates, which you will then need to complete and issue to the individual investors.

The EIS 3 or SEIS 3 certificates are not a guarantee that the investor will continue to qualify for the tax relief; it merely confirms that HMRC is satisfied that the company met all the qualifying conditions from the date of issue of the shares until the date of issue of the compliance statement. The company and investors will need to ensure that all qualifying conditions continue to be met throughout the three year qualifying period following the date of share issue.

Click through to download our Guide to the Seed Enterprise Scheme.

Contact us today for advice on any of the issues discussed in this article.


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