If you're raising funds for your company, understanding these schemes could significantly increase your chances of success. In this article, we'll break down how they work, what they offer, and how to get started.
What are SEIS and EIS?
These are government-backed schemes designed to encourage private investment into early-stage businesses by providing generous tax reliefs to investors.
Why They Matter to Startups
By offering tax incentives, SEIS and EIS make your company more attractive to investors.
SEIS Benefits Include:
- 50% income tax relief on investments up to £100,000 per year.
- Capital gains reinvestment relief.
- Tax-free growth on the sale of SEIS shares after three years.
- Loss relief on failed investments.
EIS Benefits Include:
- 30% income tax relief on investments up to £1 million per year (or £2 million for knowledge-intensive companies).
- Capital gains tax deferral relief.
- Tax-free growth on the sale of EIS shares after three years.
- Loss relief on failed investments.
How to Qualify
To be eligible:
SEIS Requirements:
- Fewer than 25 employees.
- Less than £350,000 in gross assets.
- Trading for less than 3 years.
- Maximum £250,000 total SEIS investment.
EIS Requirements:
- Fewer than 250 employees (or 500 for knowledge-intensive companies).
- Less than £15 million in gross assets.
- Trading for less than 7 years.
The SEIS and EIS Application Process
- Advance Assurance: Apply to HMRC for Advance Assurance. This gives investors confidence that you qualify.
- Raise Funds: Issue shares to qualifying investors.
- Submit Compliance Statements:
- For SEIS: Use the SEIS1 form.
- For EIS: Use the EIS1 form.
- Receive Tax Certificates:
- For SEIS: SEIS3 certificate.
- For EIS: EIS3 certificate.
Common Mistakes to Avoid
- Issuing shares before receiving Advance Assurance.
- Failing to meet the qualifying criteria (e.g., non-qualifying trades like banking or legal services).
- Not keeping accurate records of share issuance and investments.
Conclusion
SEIS and EIS are exceptional opportunities to attract funding, but they require careful planning and strict compliance. At Nest, we guide startups through the entire process—from securing Advance Assurance to issuing compliant share certificates and managing investor relations.
