The UK government’s Seed Enterprise Investment Scheme (SEIS) is a stimulus program designed to encourage entrepreneurship, innovation, job creation and grow the British startup hub. It incentivises investment in early-stage companies by offering tax relief to individual investors, proving SEIS eligibility to be a huge value-add for seed-stage startups.
In 2023, the program administered by HMRC received a long-awaited upgrade, allowing businesses to raise a maximum of £250,000 of investment through the scheme (previously £150,000), including any other de minimis state aid received in the 3 years up to the date of investment, such as an Innovate Grant for example. On the investors’ side, SEIS now allows them to invest up to £200,000 per tax year under the scheme (previously £100,000), and the same 50% tax relief remains.
From 6th April 2023, to be eligible for SEIS, HMRC requires that your company must:
- be established in the UK;
- carry out a new qualifying trade, meaning it must not have been carried out for more than three years;
- not have gross assets over £350,000 when the shares are issued;
- have less than 25 full-time-equivalent employees in total when the shares are issued;
- not be listed on a registered stock exchange at the time of share issue;
- not control another company unless it’s a qualifying subsidiary;
- not have arrangements in place to become a listed company or a subsidiary;
- not be a member of a partnership;
- not have been controlled by another company since incorporation.
- not have raised EIS investment previously.
The company must spend the funds within 3 years of the investment on:
- a qualifying trade;
- preparing to pursue a qualifying trade;
- Research and Development that leads to qualifying trade.
In order to participate in the scheme, you must apply for advanced assurance, demonstrating you meet the risk to capital requirement (this application usually takes 2-6 weeks to be processed), which requires declaration of the following:
- How much you hope to raise.
- A business plan and a three-year financial forecast.
- A copy of your latest accounts.
- Trading and activities to be carried out – your projected spend.
- Amounts received from other VC schemes.
- A copy of the register of members.
- Draft investor documents – for example, your latest pitch deck.
- Details of any agreements between the company and shareholders or venture capital trust.
- Completed checklist for either SEIS or EIS scheme – or both.
- Any other documents to show you meet the qualifications.
- Provide the name and address of prospective investors.
You should be applying for advance assurance and fundraising simultaneously. It is advisable to maintain an organised tally of your prospective investors’ details and documents that confirm your eligibility and position throughout the length of the application and fundraising process. Doing so not only ensures your investors are indeed going to get their tax relief following the share issue and that your company remains eligible for the scheme, but enables you to submit your SEIS1/Compliance Statement to HMRC once the investment moves ahead with ease. If all is in order, you should receive a confirmation letter from HMRC as well as the SEIS-3 compliance certificates for your investors.
For more information on how to proceed following closing an investment round, we recommend you take a look at our Investment Executive’s sage advice on What to do after you've secured investment.
Raising both SEIS/EIS funding differs slightly – for example, the SEIS shares must be issued before EIS funding can be given – but that’s another conversation. We recommend you ensure you are SEIS eligible before applying to be considered for funding by SFC Capital, not only is it a pillar of our investment thesis, but an application exercise that demonstrates a team’s ability to put together an investor-worthy bundle of information on their company.
For further information on SEIS eligibility, please visit https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme.
