Seed Enterprise Investment Scheme – An Insight

Seed Enterprise Investment Scheme

Are you an investor looking for some investment opportunities in UK start-ups? Are you an entrepreneur looking for fundraising for your start-up? In both cases, the Seed Enterprise Investment Scheme (SEIS) seems to be the best solution. Started by the UK government in April 2012 as one of the venture capital schemes, SEIS not only offers tax incentives to investors but also stimulates economic growth. So, let’s learn how the SEIS scheme works, how to buy or sell SEIS investments, and much more!

How Does the SEIS scheme work?

The scheme works by offering attractive tax reliefs to individuals who want to purchase new shares in a company. The maximum annual investment that you can receive and can claim relief for your start-up through this scheme is £200,000.

Who Can Qualify for This Scheme?

To qualify for this scheme, a company must be:

  • Less than 2 years old
  • Based in the United Kingdom
  • Less than 25 full-time employees
  • Not trading on a recognized stock exchange

    Also, the company must have less than £350,000 gross assets at the time of investment and it must be engaged in a trade that meets the qualifying criteria set by HMRC. Additionally, it must not have previously carried out a different trade that would disqualify it from SEIS eligibility.

    Moreover, it has to first submit a compliance statement (form SEIS1) to HMRC for the shares issued so that its investors can claim the tax reliefs offered by this scheme. Here, it should be remembered that if your start-up has already raised an investment via other venture capital schemes i.e. EIS (Enterprise Investment Scheme) or a VCT(Venture Capital Trust), your start-up will not be qualified to avail the benefit of this scheme.

    Advance Assurance

    This is operated by the HMRC to certify that the business seeking investment is SEIS compliant at the time of application. This certification enables investors to understand that the business is meeting all the criteria necessary for the sake of qualifying for the SEIS scheme. So, if you want your start-up to gain this advance assurance certificate, you must submit some information to an HMRC representative. Such information may include your business trade, financial forecast, and so on. By gaining this certificate, businesses seeking investment can make themselves more appealing to potential investors willing to invest to secure the tax incentives offered by SEIS.

    Benefits offered by SEIS to the investors

    SEIS offer a wide range of benefits to investors. It is because of these benefits they invest despite the high risk involved in investing capital into the start-up sector. Some of these benefits are as follows:

    Income Tax Relief

    If you are an investor investing £10,000 in a start-up in compliance with SEIS, you will receive £5,000 as tax relief i.e. 50% income tax relief. This income tax relief is an incentive to take the risk of investment in the start-up sector as it significantly reduces the associated financial risk.

    Capital Gains Tax Exemption

    If you sell your shares that you had purchased from a business under this scheme three years ago, you will not have to pay any capital gains tax as there is a 100% CGT exemption in such a scenario.

    CGT Reinvestment Relief

    If you choose to invest the proceeds obtained from selling some of your assets in a SEIS-compliant business, the CGT on the gains from your initial investments will be subjected to a 50% tax reduction.

    Apart from these, there are also other benefits, such as loss relief and inheritance tax relief, all of which make SEIS a great opportunity for start-up founders and investors alike. The scheme not only encourages innovation but also sets a path to success for start-ups.