The Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) was set up specifically to benefit small start-up companies and their investors. Although similar to the original EIS, it is directly focused on start-ups rather than small companies generally. Tight lending conditions by banks and a reluctance to invest in small, high-risk ventures by other providers of funding led the Chancellor to set up a scheme to directly target equity financing at the start-up sector of the economy. 

The benefit to small businesses is increased potential for raising finance. The benefit to investors is tax breaks on Income, Capital Gains and Inheritance Tax. 

Investing in SEIS

The investor requirements are much the same as with other EIS investments; however, the tax reliefs are different. Income Tax relief is available at 50 per cent of the cost of the shares on up to £100,000 invested. That means a maximum of £50,000 can be offset against the investor’s Income Tax liability in the year of investment or the preceding tax year if there is insufficient liability in the first year.

Company Requirements

There are various requirements that must be met; these are similar in scope to other EIS schemes but the scale is considerably smaller 

• The company must be unquoted at the time the shares are issued which means:

1. It cannot be quoted on any recognised stock exchange such as the London Stock Exchange
2. The Alternative Investment Market and PLUS Market are not considered recognised stock exchanges for the purposes of the SEIS regulations so companies listed on theses exchanges may raise money through SEIS
3. A company may become quoted after the shares have been issued without investors losing their tax reliefs if the arrangements to become listed were not in place at the time the shares were issued

• The company must have less than 25 employees at the time of the share issue
• The gross assets of the company must not exceed £200,000
• The company cannot raise more than £150,000 in total through the scheme
• The company must not have had investment from a venture capital trust
• The company must not have carried on a trade for more than 2 years from the date of issue of the shares and must not have carried on any other trade before
• The company must not be a member of a partnership. This requirement applies from the date of incorporation
• The company may have subsidiaries which must all be qualifying subsidiaries such that it owns 50 per cent of the company’s share capital and there is no control by another company; this requirement applies from the date of incorporation
• The company must not be controlled by another company and arrangements must not have been in place for this to subsequently become the case at the time the shares were issued. This requirement applies from the date of incorporation
• The company must be UK resident from the date of issue of the shares
• The company must carry out a qualifying trade; this requirement applies from the date of issue of the shares

 

All the money raised by the relevant share issue must be spent within 3 years or investors lose their tax reliefs. 

If you have any questions about the Seed Enterprise Investment Scheme as an investor or a business Rollingsons has experienced lawyers who can assist you. For more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by telephone on 0207 611 4848.