The COVID effect on many businesses has substantially weakened their balance sheets. Many companies may look to start over again after a Members Voluntary Liquidation or look to raise extra funding for their business.

If your business is going through a fundraising process then tax advantaged schemes such as the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) will certainly attract investors and make you more investible.

As part of the UK government’s ongoing initiative to support SMEs each scheme was designed to make investment in UK-based businesses attractive. Recognising the difficulties often faced by early-stage companies when it comes to raising the finance needed for growth, these schemes offer generous tax relief to investors who are willing to put their faith and money into these ambitious companies. However, these investments come with risk for the investor.

SEIS is focused on very early-stage companies and offers Income Tax relief of 50% on the amount invested.

The big brother of the SEIS, the EIS is designed for small and medium-sized businesses and comes with Income Tax relief of 30% on the amount invested.

There are other tax benefits which will be covered in our next blog.

ELIGIBLE COMPANIES

To be eligible, the company must:

• have been trading for less than 2 years under SEIS or 7 years under EIS. Preparing to trade does not count as trading for SEIS.
• have less than 25 employee under SEIS or less that 250 for EIS
• have no more than £200,000 gross assets for SEIS or £15m for EIS

ELIGBLE INVESTORS

To be eligible:

• the investor cannot be a paid director under EIS, unless it is a permitted payment.

• the investor’s equity stake, together with their associates, can be no higher than 30% to qualify for EIS or SEIS tax relief. The 30% applies to:

• • shares
  • rights to assets if the company is wound-up.
  • voting rights

These conditions apply for:

• SEIS – from the date the company was set up.
• EIS – for 2 years before the investment and for the minimum qualifying period for the investment (at least 3 years).

PRACTICAL POINTS ON ISSUING SHARES

• It is at your discretion which investors receive SEIS and which receive EIS – typically you would raise under SEIS first.
• You can raise under both SEIS and EIS, however you must not issue shares under both schemes on the same day.
• Make sure you issue the shares after you receive your investment (i.e. the money is in the bank first, then issue the shares.)
• The shares must be newly issued, not existing shares.
• The shares must be full risk ordinary shares which are not redeemable and carry no special rights to a company’s assets if it closes down.
• There are other rules on shares that will be covered in our blog Shares Issues for SEIS/EIS Tax Relief

PRE-APPROVAL OF SEIS OR EIS SCHEME

You can apply for pre-approval from HMRC. There are a number of documents and information that need to be supplied to HMRC for this approval.

OTHER CONSIDERATIONS:

When you’ve issued your shares, you must complete a compliance statement and send it to HMRC. For SEIS you can only submit your compliance statement when you’ve:

• carried out your qualifying business activity for 4 months
• spent at least 70% of the amount raised by the relevant share issue

For EIS, you can only submit your compliance statement when you’ve carried out your qualifying business activity for 4 months. You must submit it within 2 years of this date, or within 2 years of the end of the tax year in which the shares were issued (whichever is later).

If you need information on this or help with pre-approval, please contact us on

[email protected]

07813-915-038

01628-623444