Originally launched by the government in 2012, the Seed Enterprise Investment Scheme – SEIS is aimed at encouraging investment in those companies that are at an early stage by offering tax-efficient benefits to investors. Income tax relief is one incentive while they will also be exempt from capital gains tax. This encourages the economy to grow through enterprise and entrepreneurship.
How Does it Work?
It was started as a way of helping early-stage businesses just as they are about to begin trading.
The amount that they can raise is up to £150,000 of funding via Seed Enterprise Investment Scheme. This is a limit that can be accumulated and is not set as an annual limit. Along with this, businesses must not have obtained funding under EIS or venture capital trust schemes.
Therefore, any money that businesses raise must be spent within three years and it can be spent on:
- A qualifying trade
- Preparation to carry out a qualifying trade
- Research and development that you expect to lead to a qualifying trade
The investment cannot be used to purchase shares unless they are in a qualifying 90% subsidiary that utilises the money to carry out a qualifying business activity.
Investors – How does SEIS Work For Them?
In one single tax year, investors have the ability to invest a maximum of £100,000. However, this can be spread over several companies. They must also not own a controlling stake in any of the businesses that they choose to invest in.
Should investors make an investment of up to £100,000 they can then receive an income tax relief of as much as 50% providing then choose to invest in a company that meets the requirements of the SEIS. Should they not take advantage of the full £100,000 limits, the surplus can be carried back to the previous year.
All shares in a company must be held for a three year period, from the date of issue in order for them to retain the tax relief. Should the investor become disposed of during the three year period or if they fail to meet any of the qualifying conditions, then the relief will either be removed or decreased.
Along with income tax relief, they are also exempt from Capital Gains Tax on shares that they own within the SEIS programme. This provides investors with an additional tax break that can amount to 28% of their gain.
What Makes a Business Eligible for Seed Enterprise Investment Scheme ?
There some strict requirements and criteria that have to be met in order for your business to become eligible for SEIS.
Therefore, your business should:
- Be based in the UK, and have a permanent establishment in the British Isles
- Have fewer than 25 employees
- Be no more than two years old
- Have assets of less than £200,000
- Trade in an approved sector
Your business cannot use the scheme if it:
- Carries out a new qualifying trade
- Is not trading on a recognised stock exchange at the time of the investment
- Is not intending to become a quoted company, or a subsidiary of one, at the time of the investment
- Does not control any other company, and has not been controlled by another company since the date of your company being incorporated