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What are the Differences Between SEIS and EIS Schemes for UK Companies?

SEIS and EIS Schemes
26
Jun

By Cheryl Dutton, 26.06.2020

The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are UK Government incentives that encourage innovation by granting private investors a significant tax break when investing in early-stage, ‘high-risk’ companies. UK Company SEIS and EIS Schemes are highly attractive for both investors who are seeking to put their money and trust into energetic and aspiring companies, and for fledging companies that require venture capital.

What does the SEIS and EIS schemes offer?

Both schemes share a core purpose – to act as a pathway for young, small/midsized companies in the UK who may be at risk of struggling to acquire much-needed funding for business growth. As the widely regarded ‘finance gap’ can loom over new companies, these schemes aim to offer investment at the early stages of a company’s life and turn it into high growth as the company expands.

The Differences within each Scheme

While both the SEIS and EIS schemes have the same core purpose, there are a couple of distinguishing factors between the two.

SEIS Scheme

  • 50% tax relief against the invested sum in the company. Example – an investment of £100,000 will return £50,000 in Income Tax from HMRC.
  • Specifically focused on very early stage companies. Having fewer than 25 employees and trading under 2 years.
  • Application can be made to HMRC as early as 4 months into trading.
  • Funding limit of £150,000.
  • 100% CGT (Capital Gains Tax exemption) on any gain from the sale of shares if held for 3 years. Example – invest £10,000 shares, increase to £1.5 million (tax free).
  • Shares that are held for an initial period of over 2 years are inheritance tax (IHT) free. Example – if an investor invests £100,000 and passes away after two years, the £100,000 will get the full IHT relief.
  • An asset that is disposed and re-invested into an SEIS is exempt from CGT (Capital Gains Tax exemption).
  • Maximum investment £100,000
  • Maximum equity stake 30%
  • The investor cannot be employed in the company.
  • The company must have a permanent establishment in the UK.

EIS Scheme

  • 30% tax relief against the invested sum in the company. Example – an investment of £100,000 will return £30,000 in Income Tax from HMRC.
  • Designed to focus on companies at a more mature stage.
  • Having fewer than 250 employees and trading under 7 years.
  • For ‘knowledge intensive’* companies, having fewer than 500 employees and trading under 10 years.
  • Application can be made to HMRC after 70% of the money raised has been employed in the trade.
  • Funding limit of £12m or £20m if the company is ‘knowledge intensive’*
  • 100% CGT (Capital Gains Tax exemption) on any gain from the sale of shares if held for 3 years. Example – invest £10,000 shares, increase to £1.5 million (tax free).
  • Shares that are held for an initial period of over 2 years are inheritance tax (IHT) free. Example – if an investor invests £100,000 and passes away after two years, the £100,000 will get the full IHT relief.
  • Shares that are held for an initial period of over 2 years are inheritance tax (IHT) free.
  • A re-invested asset in to an EIS is not exempt from CGT (Capital Gains Tax exemption).
  • Maximum investment £100,000,000
  • Maximum equity stake 30%
  • The investor cannot be employed in the company.
  • The company must have a permanent establishment in the UK.

* Knowledge Intensive Companies (KICs) – companies that are conducting development, innovation and/or research at the time that they are issuing shares.

How to Apply – Advance Assurance Application‎

An application should be made to HMRC for advanced assurance before the offer of SEIS or EIS is given to investors. The HMRC will seek the following:

  • The business plan and 3-year financial forecast for your company
  • A copy of the company’s latest accounts (if available)
  • The register of members to date.
  • Any documents relating to your proposal for potential investors.
  • Details of proposed spending on all trading and activities to be carried out by your company.

*Additional documentation may be sought by the HMRC depending on the circumstances.

Before committing to invest, most investors will require an advanced assurance application has been submitted to ensure that your company is eligible for funding provided by SEIS and EIS.

While the two schemes are open to companies who meet the criteria outlined, the availability of SEIS and EIS will depend on the circumstances of an investor and a company seeking investment.

The HMRC website offers further information on tax relief. Tax advice should be sought on any concerns regarding your investment.

For more information on the UK Company SEIS and EIS Schemes or to Setup a UK Company, please don’t hesitate to Contact Us. The experts at Euro Company Formations would be happy to assist you.

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