Generous tax incentives for investors: S/EIS and reducing the risk of investing
For small and medium sized businesses aiming to scale, securing investment can be a game-changer.
SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are government approved tax relief schemes to encourage early investment into early stage, unlisted companies (AIM companies are not excluded).
Key differences between EIS and SEIS
SEIS is based heavily on EIS. However, there are key differences some of which are outlined in the table below.
| Condition | EIS | SEIS |
|---|---|---|
| Income tax reduction | 30% of investment | 50% of investment |
| Maximum annual investment per investor | £1 million (up to £2 million in knowledge-intensive companies) | £200,000 |
| Maximum investment per company | £5 million from all schemes in any 12-month period; £12 million (total) for all companies except for knowledge-intensive companies where the limit is £20m (total) | £250,000 |
| Maximum age (company) | Less than seven years old when it receives its first relevant investment (10 years if it is a knowledge-intensive company). No time limit where the issuing company receives follow-on funding from the initial EIS investment | Less than three years old. Company must not have previously carried on a trade |
| Maximum number of full-time equivalent employees | Less than 250, unless it is a knowledge-intensive company, then fewer than 500 | Less than 25 |
| Balance sheet gross assets limit | £15 million before and £16 million after EIS share issue | £350,000 before investment for shares |
| Purpose of investment | Must be for a qualifying trade | Must be for a new qualifying trade |
| Use of money | Money raised must be used for qualifying activity within two years | Money raised must be used for qualifying activity within three years |
| Directors | Paid directors excluded, subject to carve-outs for directors whose entitlement to remuneration does not start until after the acquisition of shares | Paid directors not excluded |
Assisting companies attract investment – HMRC Advance Assurance
Before committing funding, most investors will want to know if a company is eligible for S/EIS. Getting HMRC approval by way of an “advance assurance” shows potential investors that the company is S/EIS approved.
Gravita can work with you to ensure all the requirements are met, liaise with HMRC and submit an advance assurance to HMRC. It should be noted that an assurance granted for a particular round of investment does not necessarily mean that future rounds are covered.
How we can help
Gravita can provide expert guidance to help companies and investors alike navigate this generous government backed funding tool. We can assist navigate the complex S/EIS rules with their strict eligibility criteria and compliance requirements.
Our S/EIS services include:
- Eligibility assessment. Confirming a company meets the S/EIS rules
- Advance assurance. Securing HMRC pre-approval to give investors confidence in tax relief eligibility
- Compliance support. Managing the compliance requirements, including the EIS compliance statement
Next steps
Whether you are a company seeking capital or an investor, to discuss the contents of this article in more detail or any other tax matter, please speak to Fiona Cross at fiona.cross@gravita.com.
Similar Insights
The Chancellor’s proposed changes to partnership tax could have wide implications across professions
How share schemes can help businesses respond to higher National Insurance costs
UK tax considerations in pre-sale company reorganisations
Sign up to Gravita's latest updates and newsletters
Stay up-to-date with our event invites, latest news and updates, straight from Gravita's experts.