SEIS has been in place since 2012 and since it was introduced the rules have changed several times. The following description of the rules is as they stood immediately following the enactment of Finance (No. 2) Bill 2023 with effect from 6 April 2023. This is a simplified summary and doesn’t go into all the detail. For more information and before you contact us, we suggest you read HMRC’s published guidance.
SEIS for Investors
You can invest up to £200,000** a tax year in new shares in SEIS-qualifying companies to benefit from income tax relief at 50% of the amount invested. In order to retain income tax relief you must hold the shares for a qualifying period of at least 3 years.
After the qualifying period you may benefit from capital gains tax disposal relief on any shares disposed of at a profit.
You may also offset losses on disposal of the shares, either against capital gains or (in some cases) income, net of any income tax relief retained.
You and your associates must not be connected with the company by employment (although directors may qualify), or have more than a 30% stake in the company. The relief is also subject to some anti-avoidance rules.
You can also write off up to half of an existing capital gains tax charge if you re-invest the gain in SEIS-qualifying shares.
Before you can claim most of these reliefs, HMRC first has to certify that the company invested in, and the share issue, meet all the requirements. Some of the tests have to be met throughout the 3 year qualifying period for the shares, or HMRC will recover some or all of the tax relief.
SEIS for Companies
To be eligible for SEIS investment, a company must meet all the conditions, including:
- It must carry on a ‘new qualifying trade’, being one which has not been carried on by either the company or by any other person for longer than two years at the date of issue of the shares; and where neither the company nor any qualifying subsidiary had carried on any other trade before the company in question began to carry on the new trade
- It must have fewer than 25 employees.
- It must have no more than £350,000** in gross assets.
- It must not be quoted on a recognised stock exchange.
- It must never have been controlled by another company.
The above rules apply to the group if the company is part of a larger group.
Shares issued under SEIS must be ordinary non-redeemable shares, with no preferential rights to assets in a winding up and limitations on preferential rights to income. Additionally, a company cannot raise more than £250,000** finance in total through SEIS (and certain other de minimis State aid also has to be taken into account*). Additional later fundraising may qualify for EIS.
Money raised through SEIS must be used for a qualifying trading activity (including preparations for trade) or for research and development intended to benefit such a trade. All SEIS investments made on or after 15 March 2018 must meet the ‘risk to capital’ condition.
Most trades qualify, but some don’t. See HMRC’s website for a full list of excluded activities.
* From 6 April 2020, Employment Allowance will now be regarded as de minimis State aid. This means it will be taken into account when considering the total State aid a Company is able to receive. If a Company is raising investment via SEIS and is eligible for Employment Allowance, it may not be able to raise the full amounts under the SEIS. Companies should therefore be mindful of the timing of receiving the Allowance and the overall de minimis limits.
** For SEIS share issues on or after 6 April 2023, companies are able to raise up to £250,000 of SEIS investment (an increase from the previous limit of £150,000).
For SEIS share issues on or after 6 April 2023, a company raising SEIS funds must have gross assets of no more than £350,000 (an increase from the previous limit of £200,000).
For SEIS share issues on or after 6 April 2023, the business being funded by SEIS investment must be less than 3 years old (the previous limit was 2 years).
For SEIS share issues on or after 6 April 2023, the annual investor limit was increased to £200,000 from the previous limit of £100,000.
It should be noted that under current legislation, if a company has already received EIS or VCT funding, it cannot receive any further SEIS investment, even if it is with the revised age and gross assets limits for SEIS.
