How to use Seed Enterprise Investment Scheme to raise money for your company
Seed Enterprise Investment Scheme (or SEIS) is a fantastic way to source invaluable early stage funding for your company. You’ll exchange equity in the company for capital investment with generous tax relief given to investors to sweeten the deal and incentivise growth in UK business.
How the scheme works
Introduced in 2011, SEIS investment comprises a generous system of tax breaks offered to those investing in small or new start-up companies as well as a framework for the companies to seek out new partners to invest in the business.
Investors can make up to £100,000 per year in SEIS investments spread across multiple businesses or in a single unit of shares of one company. They must not control the company they are investing in and cannot own more than 30% of the gross assets.
Tax breaks for investors can be up to 50% and are applicable within the financial year/accounting period that the investment was made regardless of their own marginal rate of income tax or Capital Gains Tax obligations.
Companies looking to utilise venture capital schemes like SEIS are allowed up to £150,000 in seed investments from any number of investors.
Sleek can help with your EIS and SEIS Advance Assurance application from just £250. Please book in a meeting with one of our advisors for further information.
Knowledge-intensive companies seeking to utilise these tax reliefs must be compliant with SEIS and gain an official compliance statement for the scheme and should be thorough when conducting qualifying trade research to ensure the SEIS shares they are looking at are eligible.
How to know if your company can use the scheme
There are a number of qualifying trade conditions that entrepreneurs must meet in order to be able to attract investors through SEIS and established companies investing to be able to claim the associated tax relief.
For the entrepreneur seeking to raise money:
- The limited company seeking the investment must be permanently based in the UK
- The company has to have less than 25 employees in total. If it is a parent company of a group then this applies to the whole group and not just the subsidiary
- The company must have been established for less than 2 years
- The company cannot already have more than £200,000 in gross assets
- The company must be operating in an approved industry or sector. This does not include areas such as investment, finance or property
- The company must be fully independent
- The company must not already be listed on any recognised stock exchange
You must also ensure that potential investors meet the following criteria:
- The investor must keep the shares for a minimum or three years
- The investor must remain SEIS compliant after the investment via a compliance statement
- The investor must not use SEIS for tax avoidance reasons
- All shares must be paid in full via cash immediately
- The investor cannot also be employed by the company they are investing in
Not sure about EIS advance assurance? Click that link to our article to find out more!
How to find investors?
As a well-known scheme, SEIS is endorsed by a number of primary fundraising sites in the UK. Think Crowdcube and Seedrs. Once you know your company is likely to be SEIS compliant it’s a great selling point to source potential investors due to the long list of benefits afforded to them for deciding to invest.
Companies looking to invest in innovative start-ups will keep a close eye on those targeting SEIS approval to seek start-up capital. SEIS as an organisation also acts as somewhat of a facilitator and generally works to put your business in front of the right eyes. SEIS accreditation generally means that you will attract people who believe they can add value to your service.
What after you find investors?
After you find investors interested in the business plan and have confirmed that your company will be conducting qualifying business activity you should seek to receive what’s known as Advance Assurance.
Advance Assurance is an official notification from the UK government and confirms that SEIS is likely to apply to the investment. The wording here is careful and HMRC will not completely guarantee approval as the circumstances may change but in general this is the best way to set investors’ minds at ease when embarking on a venture capital scheme.
Once your application has been accepted you will be given certificates to prove it. This certificate is invalid indefinitely as long as none of the circumstances leading to gaining the SEIS compliance statement change.
Make the processes of application and generating investment more efficient by using an advisor such as Sleek. From helping you decide whether it’s right for you, to discussing the tax relief with potential investors, we support you at every stage.
How to apply for SEIS
To obtain advance assurance on SEIS companies will need to provide the following information to HMRC’s Small Companies Enterprise Centre (SCEC).
- Details of the business’s primary industry
- Company structure
- Latest accounts
- Any financial forecasts
- A proposal detailing capital and the share of equity
- Any other supporting documents requested by HMRC
Once assurance has been gained and the received investment has successfully resulted in the issue of shares, companies must complete an SEIS1 Compliance statement and return it to HMRC.
Alternatively, make the process easier by getting an SEIS expert to complete the Advance Assurance application for you.
Wondering what is equity in the UK? Click that link to our article to find out more!
How can Sleek help
We can support you throughout your SEIS/EIS application and beyond. After setting up a meeting with you to gather the relevant information, we handle all of the admin. Once you receive Advance Assurance, we can provide you with startup guidance to help you.
Grow your startup with the Seed Enterprise Investment Scheme. Through income tax relief, this government initiative allows you to attract investors and business partners. Sleek can help you to gain SEIS assurance and to start benefiting from the scheme. Save time and money with our support.
No, SEIS tax reliefs cannot be utilised by a current employee or director of the company.
SEIS funds raised are designed to be used to incentivise investment and startup companies. This means they can be used for most business activities directly related to expansion such as R&D costs or for growing internal structure. It cannot be used for things like assets that are intended to be resold, settling bank loans, land or settling other agreements with creditors.
Companies qualify for SEIS by meeting the criteria set by HMRC. This means being permanently based in the UK, being less than 2 years old and having no more than £200,000 in assets already.
A company can raise up to £150,000 via SEIS. This can be from a single or multiple investors.