Unravelling the Eligibility Criteria SEIS and EIS: Who can Invest?
SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) offer enticing investment opportunities for individuals looking to support early-stage businesses and benefit from attractive tax incentives. However, it’s important to understand the eligibility criteria before diving into these schemes.
In this article, we will outline the key requirements for SEIS and EIS investments, providing a foundation for further exploration.
Understanding the SEIS Eligibility Criteria
SEIS is designed for smaller, early-stage companies seeking funding. To qualify for SEIS investments, both the investor and the company must meet specific criteria, broadly outlined as follows:
- Must be an individual taxpayer in the UK.
- Cannot be an employee of the company at the time of the investment (but can be a paid director in certain circumstances).
- Must not have a substantial interest in the company or any associated entities, generally deemed as more than a 30% shareholding.
- Must not be connected to the company in a manner that would contravene the rules.
- Tax reliefs are available on up to £200,000 of investment each year* (£100,000 for shares issued before 6 April 2023), providing the shares are paid in full upfront.
- Shares must be held for at least 3 years.
- Must be an unquoted UK company, with a permanent establishment in the UK.
- Must have fewer than 25 full-time equivalent employees.
- Does not control another company other than qualifying subsidiaries and is not controlled by another company.
- Must have gross assets not exceeding £350,000* before the investment (£200,000 for shares issued before 6 April 2023).
- Must be carrying out a qualifying trade, less than 3 years old* (previously 2 years), and not engaged in excluded activities such as property development, financial services, and certain others.
- Must intend to use the funds raised for a qualifying business activity within three years of the share issue.
- Can raise up to a maximum of £250,000* through SEIS (£150,000 for shares issued before 6 April 2023).
- Must not have raised through EIS or VCT previously.
Understanding the EIS Eligibility Criteria
EIS is designed for larger, high-growth potential companies. The eligibility criteria for investors and companies are broadly like SEIS, with the following differences:
- Tax reliefs are available on up to £1m of investment each year, providing the shares are paid in full upfront.
- The maximum annual investment can be up to £2m if at least £1m is invested in knowledge-intensive companies.
- Must have fewer than 250 full-time equivalent employees.
- Must have gross assets not exceeding £15m before the investment.
- Can raise up to £5m each year, and a maximum of £12m in the company’s lifetime (knowledge-intensive companies can raise more)
- Must raise EIS investment within 7 years of your company’s first commercial sale.
Should you obtain Advance Assurance?
It is generally advisable to obtain Advance Assurance, which gives comfort on whether HMRC agree that an investment would meet the conditions of the scheme. You will need information such as how much money you are looking to raise, business plan and financial forecasts, as well as the most recent statutory documents such as annual accounts and the Company articles. You’ll also need to explain to HMRC how the company meets the risk to capital condition and show that the money raised will be utilised to ensure long-term growth of the business.
Next steps if you are thinking about SEIS and EIS investments:
If you are interested in exploring SEIS and EIS investments further or have specific questions regarding eligibility, it is advisable to seek professional advice from experts in tax and accounting matters.
Jake Standing is a qualified Chartered Accountant who can support investors and companies with their SEIS and EIS journeys. You can reach out to Jake by emailing firstname.lastname@example.org to learn more about the intricacies of these schemes.
Author: Jake Standing, Director
Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided in this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site.
Date published: 27 June 2023