Raising capital: a beginner's guide to SEIS and EIS

By: Clive Hyman

Date: 5 March 2018

Raising capital: a beginner's guide to SEIS and EISThe Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two schemes that offer new and growing young UK businesses potentially attractive tax vehicles when securing much-needed investment.

What's the difference between SEIS and EIS?

SEIS is for recently-incorporated companies that have been trading for less than two years. The company can receive a maximum of £150,000 through the scheme, which offers private investors 50% up front tax relief against their income tax bill.

EIS, on the other hand, is for those seeking up to £5m, giving investors 30% upfront tax relief.

Any gains from SEIS and EIS investment are 100% exempt from inheritance tax, capital gains tax and income tax.

However, the reliefs can be withdrawn if companies do not follow the rules for at least three years after the investment is made.

Will my company qualify?

Most trades qualify, unless your business is in coal or steel production, farming or market gardening, leasing activities, legal or financial services, property development, running a hotel or nursing home or electricity, heat, gas or fuel generation.

You must be UK-based and not trading on a recognised stock exchange at the time of the share issue, or have any arrangements in place to become quoted.

If you’ve raised money through SEIS, you can still go on to raise further funds through EIS (providing you qualify).

What steps do I need to take?

It is highly advisable to engage a specialist tax adviser to help you acquire the necessary SEIS/EIS approval.

You’ll then need to market the offer - through a fund manager or a corporate finance house, with links to high-net-worth individuals who are qualified to look at it.

If you are a bigger company using EIS, you will need an introducer or specialist finance company to manage everything.

Remember to complete a separate application for each share issue. If your application is successful, HMRC will confirm the decision and send you compliance certificates to give to your investors.

This is very important; your investors cannot claim the tax relief until they receive their compliance certificate.

Are SEIS and EIS applications usually successful?

HMRC statistics show that in 2015-16, 2,360 companies received investment through SEIS and £180m of funds were raised - similar to 2014-15, when 2,365 companies raised a total of £180m.

Overall, since EIS was introduced, 26,355 companies have received investment and almost £16.2bn of funds have been raised.

Although SEIS and EIS are very attractive schemes and can certainly help a company appeal to serious investors, it is still easy for both parties to come unstuck. So, if raising money is important to the future of your business, make sure you do it properly and seek expert guidance; a failed raise can be both costly and damaging.

Sponsored post. Copyright © 2018 Clive Hyman FCA, chairman and CEO of Hyman Capital.