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The SFC Guide to SEIS Eligibility

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The SEIS upgrade has finally arrived – does your business qualify under the new rules?

The UK government’s Seed Enterprise Investment Scheme (SEIS) is a stimulus program designed to encourage entrepreneurship, innovation, job creation and grow the British startup hub. It incentivises investment in early-stage companies by offering tax relief to individual investors, proving SEIS eligibility to be a huge value-add for seed-stage startups.

In 2023, the program administered by HMRC received a long-awaited upgrade, allowing businesses to raise a maximum of £250,000 of investment through the scheme (previously £150,000), including any other de minimis state aid received in the 3 years up to the date of investment, such as an Innovate Grant for example. On the investors’ side, SEIS now allows them to invest up to £200,000 per tax year under the scheme (previously £100,000), and the same 50% tax relief remains.

From 6th April 2023, to be eligible for SEIS, HMRC requires that your company must:

  • be established in the UK;
  • carry out a new qualifying trade, meaning it must not have been carried out for more than three years;
  • not have gross assets over £350,000 when the shares are issued; 
  • have less than 25 full-time-equivalent employees in total when the shares are issued;
  • not be listed on a registered stock exchange at the time of share issue;
  • not control another company unless it’s a qualifying subsidiary;
  • not have arrangements in place to become a listed company or a subsidiary;
  • not be a member of a partnership;
  • not have been controlled by another company since incorporation.
  • not have raised EIS investment previously.

The company must spend the funds within 3 years of the investment on:

  • a qualifying trade;
  • preparing to pursue a qualifying trade;
  • Research and Development that leads to qualifying trade.

In order to participate in the scheme, you must apply for advanced assurance, demonstrating you meet the risk to capital requirement (this application usually takes 2-6 weeks to be processed), which requires declaration of the following:

  • How much you hope to raise.
  • A business plan and a three-year financial forecast.
  • A copy of your latest accounts.
  • Trading and activities to be carried out – your projected spend.
  • Amounts received from other VC schemes.
  • A copy of the register of members.
  • Draft investor documents – for example, your latest pitch deck.
  • Details of any agreements between the company and shareholders or venture capital trust.
  • Completed checklist for either SEIS or EIS scheme – or both.
  • Any other documents to show you meet the qualifications.
  • Provide the name and address of prospective investors. 

You should be applying for advance assurance and fundraising simultaneously. It is advisable to maintain an organised tally of your prospective investors’ details and documents that confirm your eligibility and position throughout the length of the application and fundraising process. Doing so not only ensures your investors are indeed going to get their tax relief following the share issue and that your company remains eligible for the scheme, but enables you to submit your SEIS1/Compliance Statement to HMRC once the investment moves ahead with ease. If all is in order, you should receive a confirmation letter from HMRC as well as the SEIS-3 compliance certificates for your investors.

For more information on how to proceed following closing an investment round, we recommend you take a look at our Investment Executive’s sage advice on What to do after you've secured investment.

Raising both SEIS/EIS funding differs slightly – for example, the SEIS shares must be issued before EIS funding can be given – but that’s another conversation. We recommend you ensure you are SEIS eligible before applying to be considered for funding by SFC Capital, not only is it a pillar of our investment thesis, but an application exercise that demonstrates a team’s ability to put together an investor-worthy bundle of information on their company. 

For further information on SEIS eligibility, please visit https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme.

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DISCLAIMER:
SFC Capital Ltd (SFC) is an appointed representative of SFC Capital Partners Ltd which is authorised and regulated by the Financial Conduct Authority (‘FCA’) in the United Kingdom (FRN 736284). This website is intended for professional investors only; any reproduction of this information, in whole, or part, is prohibited. The content is for information purposes only and should not be used or considered as an offer or solicitation to purchase or sell any securities.

Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Investment in SEIS/EIS eligible companies should be considered as part of a diversified portfolio. The availability of tax relief depends on individual circumstances and may change in the future. The availability of tax relief depends on the company invested in maintaining its SEIS/EIS qualifying status. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. The investment products cited herein may place capital at risk and therefore investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up. Investors may not get back the full amount invested. Companies’ pitches for investment are not offers to the public and investments can only be made by members of SFC Capital. SFC Capital takes no responsibility for this information or for any recommendations or opinions made by the companies. Neither SFC Capital nor any of its employees provide any financial or tax advice in relation to the investments and investors are recommended to seek independent financial and tax advice before committing. This website is not directed at or intended for publication or distribution to any person (natural or legal) in any jurisdiction where doing so would result in contravention of any applicable laws or regulations. No warranties or representations of any kind are expressed or implied herein. This material is confidential and is the property of SFC Capital.

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