So, you have just launched your company, and now you’re busy working on your product and refining the customer experience. Great! The next on your list is to find the investor who will buy into your vision and help progress your venture. This is where Seed Enterprise Investment Scheme (SEIS) comes into play.
As one of the UK’s most generous investment schemes, SEIS helps small, early-stage companies raise funds through individual investors by providing a series of tax reliefs on investments made into qualifying companies. Entrepreneurs and business owners can attract the investment in the first place, as it makes “high risk” investment more appealing to investors.
With all that in mind, we have constructed a handy SEIS guide for entrepreneurs and startups.
SEIS Tax Relief
- Investors can receive 50% Seed Enterprise Investment Scheme tax relief of the amount invested. This can be applied to the investment year and the previous tax year.
- The maximum amount of investment qualifying for SEIS income tax relief is £100,000 per investor.
- 100% capital gains exemption: If an investor sells their equity, the profit they earn is free from 20% capital gains tax after a three-year qualifying period.
How Can Startups Benefit From SEIS?
Similar to Enterprise Investment Scheme (often known as its sister scheme), SEIS allows both UK and non-UK companies to raise considerable investment. It mainly covers companies that are at the early stage in their journey.
As a startup or company, the main benefit of SEIS is to attract potential investors that would otherwise be hard as a seed-stage business. An eligible company can raise up to £150,000 in total under the scheme, meaning there is enough scope to enhance the company’s financial stability.
What’s more? You can also use SEIS investment funds to repay third-party loads, as long as the loan is not associated with the SEIS investor.
A few additional benefits of SEIS include:
- SEIS money can be used in the growth and development of the company.
- SEIS investment widens your network of contacts and experience with investors. Many fund managers and business angels bring knowledge and mentor you to take your business to the next level.
- SEIS investment encourages relationships with more experienced entrepreneurs, helping you build a strong community.
- SEIS is not debt finance. There is no need to worry about any interest or repayment considerations. You can reward investors through dividends or a profitable exit via a trade sale or IPO.
Is Your Company Qualified For SEIS?
The Seed Enterprise Investment Scheme (SEIS), as the name suggests is for the seed investment in the initial stages of a startup. It is essential to be qualified for SEIS to attract an equity investor.
The best part is that the rules are easy to satisfy. While it is smart to consult an accountant, the following criteria may help you know whether your company is eligible for the scheme.
Less Than 2 Years Trading
One of the most important key figures for SEIS eligibility is that your company must have been trading for less than 2 years. It means your first commercial sale occurred within the past two years or has not yet occurred.
Less Than £200,000 Gross Assets
The company should not have gross assets over £200,000 when the shares are issued.
Employ Fewer Than 25 People
The company should have less than 25 full-time employees (or part-time equivalent) at the time of the share issue.
Qualifying Trade
Most trades are qualifying, but there are certain trades that are excluded from SEIS. These mainly include financial services, farming or market gardening, and dealing in land & property development. You can check the full list of qualifying trades here.
Takeaway
Finding the investor that invests not only money but also the knowledge and skills into your business is the secret to success for startups. Seed Enterprise Investment Scheme (SEIS) helps you attract the right investor without hassle. We hope our SEIS guide for entrepreneurs helps you pave the way for meeting qualifying conditions and raising desired investment.
