SEIS and EIS both make investing in startups and scaleups a more appealing prospect to private investors through tax benefits. Investors who put money into your startup through these schemes will get a tax break on the money they invest.

SEIS is designed for startups.

There are a few more boxes you’ll need to tick (we’ll go into those later), but your company is probably eligible for SEIS if:

• It’s been trading for less than two years.
• It has less than 25 employees.
• It has less than £200,000 in gross assets.
• It hasn’t already taken any EIS investments.

Currently, if your company fits this bill, it’s eligible to receive a maximum of £150,000 of funding through SEIS investments.

But as of April 2023, your company may be eligible if:

• It's been trading for less than three years.
• It has less than £350,000 in gross assets.

And, again providing your company is eligible, receive a maximum of £250,000 of funding through SEIS.

EIS is for slightly more established companies.

Yours is more than likely eligible if:

• It’s been trading for less than seven years.
• It has less than 250 employees.
• It has less than £15 million in gross assets.

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

No announcements have been made about changes to EIS in 2023, but keep an eye on this page for updates!

The big difference between SEIS and EIS for investors is the amount of income tax relief they receive through the two schemes:

• Investors receive a 50% tax break on up to £100,000 they invest through SEIS every tax year. 
• 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 to investors.

If you want to raise more than the SEIS limit of £150,000, you can always start taking on EIS investment once you’ve hit the SEIS funding limit.

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.

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 in startups unless they have advance assurance, as they want a guarantee they’re going to 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.

Here’s a rundown of the tax benefits for investors (as long as they stick to the rules):

SEIS & EIS income tax relief

Backers can invest up to £100,000 per tax year in SEIS-eligible businesses, and then claim 50% of that back through income tax relief. That means they could reduce their tax bill by £50,000 each tax year through SEIS investments.

They can invest up to £1 million in EIS-eligible companies (rising to £2 million if at least £1 million is invested in knowledge-intensive companies) and claim 30% of this back through Income Tax relief.

This could allow them to shave £300,000 (potentially rising to £600,000) off their income tax bill.

SEIS & EIS Capital Gains Tax relief

Any profits your investors make when they sell your company’s SEIS or EIS shares are exempt from Capital Gains Tax (as long as they’ve held their shares for three years).

SEIS & EIS loss relief

Investors can also claim loss relief equal to their income tax bracket on any money they lose by investing in a company through SEIS or EIS.

For example, if someone who pays 45% income tax invests £10,000 in your company through SEIS, they’ll immediately receive £5,000 of income tax relief.

If your company folds while they still hold those shares, they’ll also get to claim 45% (£2,250) of their remaining £5,000 of at-risk capital back as tax relief.

So, after the £5,000 of income tax relief and £2,250 of loss relief, a £10,000 SEIS/EIS investment into a business that fails is reduced to a total loss of just £2,750.

SEIS & EIS capital gains reinvestment relief

50% of capital gains are exempt from Capital Gains Tax if they’re re-invested in a SEIS/EIS-eligible business.

For example, if an investor sells a property and realises a £100,000 gain, they’d usually have to pay 28% (£28,0000) Capital Gains Tax on that profit.

If they invest that £100,000 straight into SEIS/EIS-qualifying shares, the Capital Gains Tax they have to pay on that profit will be halved to £14,000. 

If you’re thinking of launching a funding round, applying for SEIS and EIS is a no-brainer.

With SEIS and EIS, you'll get the cash injection your startup needs, and in return, investors benefit from generous tax breaks when they buy your shares.

It's a win-win!

So get cracking and apply for SEIS and EIS advance assurance.

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