What is SEIS and EIS?

Learn everything you need to know about the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) in this guide, including the differences between the two, the tax benefits, if you qualify and how to apply.

Contents

1. What is SEIS and EIS?
2. What’s the difference between SEIS and EIS?
3. Is my company eligible for SEIS and EIS?
4. What are the qualifying trades?
5. What can I do with the funds I raise?
6. How do I get SEIS and EIS approval?
7. What is SEIS and EIS advance assurance?
8. How do I apply for advance assurance?
9. What are the tax benefits for investors?
10. Who can invest under SEIS and EIS?
11. Can friends and family invest?
12. Get investment-ready with Vestd
13. Further reading and resources

What is the Seed Enterprise Investment Scheme and the Enterprise Investment Scheme?

SEIS and EIS are government initiatives that encourage private investors to invest in fledgling UK businesses. They’re designed to reduce the risk that comes with investing in any early-stage company by giving investors generous tax breaks.

We’ll dive into the details later, but SEIS and EIS tax incentives include:

• Income tax relief (50% on SEIS investments and 30% on EIS).
• Any profits that come from the sale of SEIS and EIS shares after three years are exempt from Capital Gains Tax.
• Inheritance tax doesn’t apply to SEIS and EIS shares held for at least two years.
• If SEIS and EIS shares are sold at a loss, investors can offset the loss against their Capital Gains Tax.

What’s the difference between SEIS and EIS?

SEIS is designed for startups in their early years whereas EIS is for slightly more established companies. Even if you fall within one of these categories, there are a few more boxes you’ll need to tick (which we'll come onto shortly).

Basically:

SEIS is for early-stage startups and EIS is for scaleups.

SEIS and EIS make investing in plucky young companies far more appealing to investors because of the tax benefits. Investors who put money into your company through these schemes will get a tax break on the money they invest.

The big difference for investors is the amount of income tax relief they receive through the two schemes.

As of April 2023, investors receive a 50% tax break on up to £200,000 they invest through SEIS every tax year. 

Investors receive a 30% tax break on up to £1 million they invest through EIS every tax year (rising to £2 million if they invest in KICs).

It’s therefore well worth making SEIS shares available to investors before you start taking on EIS funding, as it makes your company a much more attractive prospect.

If you want to raise more than the SEIS limit of £250,000, you can always start taking on EIS investment once you’ve hit the SEIS funding limit.

Is my company eligible?

The UK government recently expanded SEIS to make it accessible to more businesses. The eligibility criteria you see here are based on the latest rules.

Your company is probably eligible for SEIS if:

• Incorporated in the UK.
• It's been trading for less than three years.
• It's not trading on a public stock exchange.
• It has fewer than 25 full-time employees.
• It has less than £350,000 in gross assets.
• It hasn’t already taken any EIS investments.
• It's never received investment from a venture capital trust.
• It's not in control of another company that isn’t a qualifying subsidiary.
• It's not and has never been under the control of another company.

If your company fits the criteria, you can receive a maximum of £250,000 in funding through SEIS. 

So how does EIS differ? Your company is more than likely eligible for EIS if:

• It's permanently established in the UK.
• It’s been trading for less than seven years (although in some situations you can still apply).
• It has fewer than 250 full-time employees.
• It has less than £15 million in gross assets.
• It's not trading on a public stock exchange.
• It doesn’t control another company (other than qualifying subsidiaries).
• It's not under the control of another company, nor does another company own more than 50% of its shares.
• You don't plan on closing after completing a project (or series of projects).

If your business qualifies, it’s eligible for a £12 million* investment through the EIS scheme – rising to £20 million if you’re a knowledge-intensive company (KIC).

*Capped at £5 million per year. This £12 million total includes money raised through SEIS, other venture capital schemes, social investment tax relief, and certain types of state aid.

Qualifying trades

Your business also needs to carry out what HMRC calls a “qualifying trade” to qualify for SEIS and EIS, which the vast majority of startups do. You're good to go as long as the following trades account for less than 20% of your business:

• Coal or steel production
• Farming or market gardening
• Leasing activities
• Legal or financial services
• Property development
• Running a hotel
• Running a nursing home
• Generation of energy
• Production of gas or other fuel
• Exporting electricity
• Banking, insurance, debt or financing services

You'll find more information about SEIS and EIS eligibility in our free guide.

What can I do with the funds I raise under SEIS or EIS?

The money you raise through SEIS and EIS comes with a few conditions. Firstly, you can only spend the funds you raise through these schemes on either:

• Expenses that are going to help grow your company, like hiring new employees or marketing your business. 
• Research and development that’s going to help you grow your company down the line, like developing a new product or researching ways to improve an existing one.

You also need to spend the money you raise through SEIS within three years and the money you raise through EIS within two.

And anyone with 30% or more shares in your company or voting control can’t invest in it through SEIS/EIS.

How do I get SEIS and EIS approval?

You need to get approval from the government to be able to raise funds through its SEIS and EIS schemes.

You should have a good idea of whether you tick all the boxes you need to qualify for SEIS or EIS from the criteria we walked through above.

But investors want to be absolutely certain any money they invest in your company will qualify for tax relief before parting with their cash.

And that’s where SEIS and EIS advance assurance comes in.

What is SEIS and EIS advance assurance?

Advance assurance allows you to check with HMRC to make sure your startup qualifies for SEIS or EIS before you apply.

Getting advance assurance is similar to having a mortgage in principle from a bank before you apply for a mortgage.

It gives the person or organisation lending you money peace of mind. 

When applying for advance assurance, you’ll be asked a number of questions about your company, your business plan, and how you’re planning on using the money you’re looking to raise. 

HMRC will then take all this information and decide whether your company – and the proposed investment – qualifies for the scheme you’re applying for. 

Most SEIS and EIS investors don’t invest unless they have advance assurance.

Investors understandably want a guarantee that they'll receive the tax benefits that come with making a SEIS or EIS investment. So while you don’t strictly need advance insurance to qualify for SEIS or EIS, you’re definitely going to want to apply for it.

Getting advance assurance will also save you the hassle of applying for SEIS or EIS and then being denied.

How can I apply for SEIS and EIS advance assurance?

You can apply for advanced assurance on the GOV.UK website. Or you can do it through Vestd.

We’ve created an end-to-end advance assurance application that makes applying for SEIS or EIS - and getting the investment you need - as straightforward as possible for startup founders.

We’ll hold your hand through every step of the process, making sure all the i’s are dotted and t’s are crossed before packaging your application up and submitting it on your behalf.

Our guided workflow makes the whole process as painless as possible to ensure that your application has the best chance of success.

And once you've qualified for SEIS and EIS and received investment through the schemes, you can even issue shares and share certificates to investors directly through our platform. 

SEIS and EIS advance assurance is free for customers on our Guided plan, or £350 + VAT for customers on all our other plans.