Want to increase your chances to receive growth finance? Become SEIS and EIS assured

With the end of the tax year fast approaching (April 5), there is a timely opportunity for high-growth companies seeking finance to become assured for the government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) tax schemes.

Both schemes offer generous forms of tax relief, with personal investors being able to claim back up to 50% of their investment as a reducer against their income tax. As these reliefs have to be used up in the current year, this creates an opportunity for scale-ups seeking finance to become assured to help them raise their investment before April 5.

What are the benefits?

In the 2015-16 tax year, EIS companies attracted £1.6bn of investment, with SEIS receiving £170m. They are the lifeblood of early-stage finance; with many investors only deploying capital into companies which have received Advanced Assurance status from HMRC.

One of the reasons these schemes are so popular is that they offer clear tax benefits to individual investors, which can help de-risk their investments into early-stage and innovative companies. Correspondingly, these schemes are attractive for companies seeking to raise finance as it makes it easier for them to gauge interest from investors, alongside in some instances being able to negotiate higher valuations.

EIS assured companies can raise up to £5 million annually from investors, with SEIS being restricted to a £150,000 in total.

What are the qualifying criteria?

There are a number of different qualifying criteria for the SEIS and EIS schemes, detailed in full on the HMRC website.

  • For EIS:
  1. The company must be established in the UK
  2. Companies must not be trading on a stock exchange at the time of the related share issue
  3. Must not be controlled by another company or have more than 50% of its shares owned by another company
  4. Must not have gross assets totaling more than £15 million (and not more than £16 million once EIS shares are issued)
  5. Company must employ less than 250 full time employees at the time shares are issued
  • For SEIS:
  1. The company must be established in the UK
  2. Must not be trading on a stock exchange at the time of the related share issue
  3. Does not have arrangement to become a quote company or subsidiary at time of share issue
  4. The company isn’t a member of a partnership.
  5. Must not be controlled by another company
  6. Gross assets cannot exceed more than £200,000 at the time of the share issue
  7. Employs less than 35 full-time employees
  8. Company must not have already received investment from EIS or through a Venture Capital Trust
Why Advanced Assurance?

Whilst there is no formal obligation for SEIS/EIS companies to receive Advanced Assurance from HMRC, completing these forms in advance of a share issue will confirm that your company meets the qualifying conditions for the two schemes.

The importance of Advanced Assurance has been heightened by the increasing popularity of equity crowdfunding platforms. These websites clearly mark opportunities as being SEIS/EIS Assured, with the bulk of successful campaigns meeting this criteria.

What happens after?

Once SEIS and EIS fund have been raised, companies still need to take caution and monitor their qualifying status on an ongoing basis.  Falling foul of qualification will result in HMRC clawing back of tax relief from your investors.

In addition to the initial qualifying criteria listed above, and on HMRC’s website, SEIS and shares have to be held for a minimum period of three years.

By Nick Levine, Advisory Lead, Propel by Deloitte

Propel by Deloitte can support you in completing Advanced Assurance forms for SEIS and EIS applications. We offer a wide range of services for businesses, including coaching and advice to businesses seeking funding. Contact us to discuss how we can help you.

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