What's SEIS and EIS?

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) tax reliefs are amazing ways for startups to sweeten the deal for investors by making tax relief available to them on their investment.

SEIS Tax relief applies to the first £150k of investment (changing to £250k from 6 April 2023) and EIS applies to the remainder of your investment up to £5m per year (if you’re going beyond that then, wow, good luck to you!)

In short, if you are a new startup not operating in a restricted field (e.g. property investment, legal services), you are likely to qualify for this. Both schemes entitle investors to amazing tax reliefs which effectively mean that a large percentage (50% for SEIS and 30% for EIS) of the amount invested is not actually money the investor would have had without the investment – it is money that they owe as tax, but are entitled to reduce their tax bill by the amount invested. So actually when you receive an SEIS investment, 50% of it is coming from HMRC, and when you receive an EIS investment, 30% is coming from HMRC (effectively). The further added benefit for investors is that provided the investment lasts for at least 3 years, they will likely pay no capital gains tax on the gains they make from investing in your business.

For SEIS, you'll need to be within your first 2 years of trading to qualify (i.e. from the date of your first commercial transaction) - changing to 3 years from 6 April 2023.

How do I make sure I can be eligible for it?

The first step, ahead of raising your investments is to demonstrate to investors that your company is eligible for the SEIS and/or EIS schemes.

To do this, you apply online ahead of your round for advanced assurance which is literally giving you assurance in advance of your investment that you will qualify. We can support you with your advanced assurance application - the price is £250+VAT. We have submitted tons of them and currently have a 100% success record.

Then what happens after I receive my investments?

After you receive your investments, you issue the shares to the investors, and then you make another application to HMRC in relation to those specific shares. You can do this in bulk, so you do a single application for all your eligible investors.

We can support you with this stage too as part of your funding round - email one of our founders to simon@legalsidekick.com or silvia@legalsidekick.com to get started.

SEIS/EIS practical point

If you are receiving funds from more than one investor and you intend to apportion SEIS and/or EIS reliefs between them, then you need to ensure that all SEIS amounts arrive first, and EIS funds arrive after – which means that each investor may need to pay in installments. Principally, this is because the SEIS relief applies to the first £150,000 of investment in your business, so if you have more than one investor and the SEIS relief is being apportioned between investors, then you need to ensure that the first investor to transfer funds does not inadvertently take the full SEIS allowance by accident.

This article was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated startup contracts and loads of startup legal resources and guides. For 'SEIS/EIS' queries, contact us.