The Seed Enterprise Investment Scheme provides a tax-advantaged way for small company owners to raise capital. Find out more in this informative article.
Is your small company less than two years old and looking to raise funds?
If the answer is yes, you may be eligible to apply for up to £150,000 of investment through the government’s Seed Enterprise Investment Scheme (SEIS).
When new companies are starting out and begin trading, it can be difficult to attract investment from outsiders. SEIS was established to boost economic growth in the UK and promote new enterprise and entrepreneurship. It is designed to help companies in their infancy to raise funds, by offering tax relief to individual investors who buy new shares in these companies.
Individuals can claim income tax relief of 50% on qualifying investments of up to £100,000 annually.
Who can apply?
For your company to apply for the SEIS it must:
• Be established in the UK
• Carry out a new qualifying trade (trading < 2 years)
• Not be trading, or have arrangements to trade, on a recognised stock exchange
• Have gross assets < £200,000
• Not control another company (unless that company is a qualifying subsidiary)
• Not be a member of a partnership
• Have < 25 FTE employees
What kind of shares can be issued?
• Shares must be paid up in full, in cash when they’re issued
• Company must have a mechanism for accepting payment
• Shares must be full risk, non-redeemable ordinary shares carrying no special rights
Could my company qualify?
Before raising funds, you can apply to HMRC for advance assurance, to see if the investment will qualify for SEIS. This can help secure funding, by showing potential investors that they may be able to claim tax relief. You can apply for advance assurance using this form.
What could we do with the investment funds?
The money raised from SEIS must be spent within three years from the date of share issue. It must be spent on the qualifying business activity for which the funds were raised, including a qualifying trade, preparing to carry out that trade, or R&D that's expected to lead to a quailfying trade.
What happens if I am an investor?
Investors can place a maximum investment of £100,000 in a single tax year, which can be spread over several companies. Investors can receive up to 50% income tax relief in the tax year the investment is made. If you sell your shares in the SEIS business after the three year investment period, any gain on sale should be exempt from capital gains tax.
Under the SEIS rules, investors cannot control the company they are investing in or hold more than 30% in the company in which they invest.