The Seed Enterprise Investment Scheme (SEIS)

What is it? The SEIS scheme, established in 2012, follows on from the EIS (Enterprise Investment Scheme), established in 1994, being the principal scheme in the trilogy of tax-based venture capital schemes. The other one is the Social Investment Tax Relief scheme, however, investment possibility ceased for this scheme on 6th April 2023. This article deals specifically with the SEIS scheme, which is distinct from EIS in that it caters more to encourage investment in smaller businesses which, by their nature, will likely be younger and, accordingly, may involve a greater investment risk.

The attraction to invest in these companies, initiated by the UK government in mind of stimulating economic growth generally, is the expanded tax reliefs that come along with this particular type of investment. From the point of view of the company: SEIS is an expedient way for small and young companies to raise capital for expansion via the sale of private shares. Any capital so raised must be spent on either: a) Expenses to help grow the company (employees, marketing, plant and machinery, etc.) b) Research and development anticipated to generate growth (development of a new product, etc.) There is a ceiling set for the amount a company can raise by this means at £250,000 There is a gross limit of £350,000 by way of valuation of the assets of the company at the point of investment.

There is an age limit of 3 years operating in a ’new qualifying trade’ at the point of investment (in simple terms, not older than 3 years since incorporation). There is a list of ‘excluded activities’ whereby if comprising more than circa 20% of the company’s trading, HMRC will deem the company not eligible for the scheme. Equally, the company can not be controlled by another company, or itself control another company, unless it is a ‘qualifying subsidiary’.

General requirements include that the company must be established in the UK, not listed on a recognised stock exchange, or part of a Partnership and have less than 25 employees at the time of issuing the shares. Companies who have previously received investment via EIS or venture capital trust are not eligible, however, it may be possible to secure additional financing via EIS once the SEIS limit is reached.

From the point of view of the investor: To qualify an investor must be an individual (not a corporate entity), who is not an employee of the issuing company and who is a UK taxpayer. The shares purchased must not comprise more than 30% of the company’s total shares, must be ordinary ‘full risk’ shares and not subject to additional rights. There is a maximum annual SEIS investment amount of £200,000 from which an individual investor can benefit by way of income tax and Capital Gains Tax re-investment reliefs.

What are the reliefs? The principal relief available at initial investment is income tax relief at up to 50% of the investment amount. This can be implemented in the tax year of investment or all, or part, applied to the previous tax year. Also, at the point of investment, if capital assets have been liquidated at a gain in order to purchase qualifying SEIS shares, a maximum of 50% of the gain can be claimed as ‘exempt’ from Capital Gains Tax.

This is called ‘Re-investment Relief’. Providing the shares are retained for at least 3 years, the disposal will be completely exempt from Capital Gains Tax. This is called ‘Disposal Relief’. Generally, this will rely on the individual have received income tax relief on the full amount of the share subscription without any of it having been withdrawn. If a loss is made on the shares by virtue of sale, or the company becoming ‘worthless’ (negligible value claim), it can be offset against any chargeable gains.

In computing the loss, the cost of the shares has to be reduced by the income tax relief given and not withdrawn. How are the reliefs implemented? Generally, the reliefs will be implemented on a self-assessment tax return, however, a high level of expertise is required in order to properly maximise the relief and ensure that mis-claims are not made, including calculations where income tax relief may need to be calculated as ‘withdrawn’ due to certain circumstances, including disposals and negligible value claims within 3 years.

The Solution Whether you are an individual investor seeking the potential taxation advantages of SEIS, or a company interested in raising finance via this means, M&M Accountants accountants have you covered with their extensive in-house experience. Indeed, for any taxation or accountancy issue, M&M Accountants are a ‘one-stop-shop’, providing an unmatched level of expertise at very reasonable fees.