How DS Burge & Co takes the stress out of SEIS and EIS
- We have a large amount of experience with SEIS and EIS applications and can act on your behalf for any correspondence with HMRC.
- If you are an investor and want to understand what tax relief you will receive, we can help calculate the benefits based on your individual circumstances. We model this based on different scenarios for your investment's performance.
- We can also help with other areas such as bookkeeping and self assessment tax returns. Using us to help with your accountancy needs gives you the time to focus on growing your start up or small business.
Need investment capital or want to invest?
If you'd like to find out more about eligibility for SEIS or EIS investment, of if you're an investor and want to understand qualification, please don't hesitate to get in touch.
SEIS: What are the basics?
There are qualifications and rules for investors and businesses. Start with investors.
When you invest in an SEIS-eligible company (described below), you become eligible for several forms of tax relief.
- If you are an eligible investor, you can claim half of the value of that investment as income tax relief when you invest in a qualified company. Invest £10,000 and immediately save £5000 in income tax.
- If your personal circumstances qualify you, then when you sell your shares after holding them for at least three years, you may be able to pay no capital gains tax on your investment gains. Triple your £10,000 investment over three years and pay no capital gains tax.
- Just reinvest your gains from another investment in an SEIS eligible company and get 50 per cent capital gains relief on those original investments.
- Suppose you invest in an eligible SEIS company and lose money (the failure rate of start-ups is notoriously high, a problem that legislation is intended to address). In that case, you may claim tax-loss relief. Take the highest rate on your income that you pay (say 45 per cent), and you can claim 45 per cent of your investment loss as tax relief.
- You may wish to discuss some complexities with our accountants: If it is to your benefit, you can apply your investment tax loss to a previous tax year (a "carry-back" provision).
- If you hold your shares in an SEIS-eligible company for two years, there will be no inheritance tax on their value.
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SEIS qualification criteria for investors
It comes as no surprise that only specific investors, in certain circumstances, qualify for these truly extraordinary tax benefits. The Government's goal seems to have been to limit the scope of these schemes (and the loss of tax revenue). To qualify for these tax benefits, you must follow these rules:
- Invest up to a maximum of £100,000 in any number of qualifying companies in each tax year.
- Hold your shares for three years, or the Government can reclaim any initial benefits you claimed (that is, "clawback" the tax relief).
- You must be a U.K. taxpayer since these benefits are U.K. tax relief.
SEIS eligibility criteria for companies
What are the qualifications and rules for the companies eligible for benefits under SEIS?
- A company can receive no more than £150,000 through SEIS investments over its entire lifespan. The legislation intends to aid new enterprises only in their earliest stages.
- A company cannot have more than £200,000 of gross assets at the time that the shares are issued.
- A company cannot have been trading for more than two years.
- A company may not have more than 25 full-time employees.
What can SEIS investment capital be used for?
The money you raise from SEIS investment must be spent within 3 years of the share issue.
You must spend the money on either:
- Qualifying trade which will cover most trade (full list of exclusions can be found here)
- Preparing to carry out a qualifying trade
- Research and development that’s expected to lead to a qualifying trade
You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.
When we turn from SEIS to EIS, we find that the two schemes are similar in promoting new enterprises in their most vulnerable early stages. The main difference is that SEIS is focused on companies in a much earlier (and riskier) stage of development. For instance, a company can raise a maximum of £150,000 under SEIS, whereas a company can raise up to £5 million under EIS.
EIS: what are the basics?
Here, again, we look at basic rules of income-tax relief (benefits) under EIS.
- When you invest in an eligible EIS company, you can claim up to 30 per cent of the value of that investment in income-tax relief. Invest £10,000 and claim £3,000 in tax relief immediately, independent of the outcome of your investment.
- Hold your investment in an eligible EIS company for three years, and all gains on those shares may be exempt from capital gains. (It should go without saying that your investments in this volatile sector of stocks may result in loss.).
- Invest your gains from non-EIS qualified assets in an EIS-qualified company, and payment of taxes on that earlier investment can be deferred until you sell your EIS shares
- In the event of a loss on your EIS-qualified investment, you can claim tax relief on the loss up to the equivalent rate of the highest income tax you pay.
- As with SEIS investments, your EIS investment loss can be carried back to your previous year's taxes.
- Inheritance tax relief is granted under EIS as under SEIS. If you hold your EIS-qualified shares for two years, you may claim total relief from the Inheritance Tax. Check with your chartered accountant; this benefit does not apply to shares listed on a recognised stock exchange.
EIS qualification criteria for investors
As in the case of SEIS benefits, the benefits available under EIS legislation are available only to qualified investors who follow the rules.
- An individual investor can invest no more than £1 million in qualifying EIS companies during a given tax year.
- The 3-year holding period for shares also applies here. If you sell or give away the shares sooner, then the Government will reclaim the benefits you received.
- You can "carry back" EIS tax relief but not carry it forward.
- And, of course, you must be a U.K. taxpayer.
- Finally, you cannot be connected to the EIS company as an employee, partner, or paid director.
EIS eligibility criteria for companies
Now let us look at benefits and eligibility rules for businesses that can benefit under EIS rules.
- A company can raise no more than £5 million in any year under EIS. Any investments raised in addition are not eligible for EIS treatment.
- A company with more than £15 million of gross assets no longer is qualified for EIS
- A company must have fewer than 250 full-time equivalent employees to qualified for EIS.
What can EIS money raised be used for?
The money you raise from SEIS investment must be spent within 2 years of the share issue or the date you started trading (if later).
You must spend the money on either:
- Qualifying trade which will cover most trade (full list of exclusions can be found here)
- Preparing to carry out a qualifying trade (which must start within 2 years of the investment)
- Research and development that’s expected to lead to a qualifying trade
The investment must also:
- Not be used to buy all or part of another business
- Pose a risk of loss to capital for the investor
- Be used to grow or develop your business
Let us take the stress out of your finances
If you'd like to find out more about how we can help, or talk about our professional tax services, please don't hesitate to get in touch
Advance Assurance
Prior to applying for SEIS or EIS you can seek "advance assurance" from HMRC.
By seeking advance assurance you can find out prior to going ahead whether the investment is likely to qualify for a scheme. If you get the approval you can use this advance assurance to show to investors.
If you do not get granted advanced assurance HMRC will explain why you don't meet the conditions.
How to apply
If you received advanced assurance and want to progress with the investment, you’ll need to submit a compliance statement to HMRC noting whether changes have occurred since you requested advanced assurance.
If things haven't changed, then HMRC will then give you permission to issue certificates to investors.
If things have changed the advance assurance will no longer apply so you'll need to inform HMRC.
If you use DS Burge & Co to help manage your application, we can liaise with HMRC on your behalf.