The highly anticipated amendments to the Seed Enterprise Investment Scheme (SEIS) officially came into effect on the 6th of April. However, the legislative journey of the Finance Bill No. 2 2022-23, which encompasses these new rules, is still underway within Parliament. This naturally raises a few pressing questions: Can startups already begin fundraising under the new SEIS rules? Are the new rules a certainty? And, when will they be enacted upon by HMRC?
Update 10/08: The Finance Bill No. 2 2022-23 has successfully received Royal Assent, hence the new SEIS rules have come into effect as of the 6th of April. HMRC will reflect the higher limits in the SEIS certificates and advance assurances.
The Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) is a vital component of the UK's financing strategy for startups; offering tax incentives to individuals who invest in early-stage companies. In September 2022, the UK government announced significant improvements to SEIS during the mini-budget. These changes, including increased SEIS limits and an extension of the eligibility period for businesses, are currently making their way through Parliament.
Current Status of the Finance Bill No. 2 2022-23
As of now, the Finance Bill No. 2 2022-23, which includes the proposed SEIS changes, has just passed through the Committee of the Whole House stage. There, the Bill was debated clause by clause, with the possibility of further amendments before it is enacted. The Bill was originally published on 23 March 2023 and already went through the 1st and 2nd Reading in the House of Commons. After the House of Commons, the bill still needs to go through the House of Lords to then finally receive the Royal Assent.
The Finance Bill No. 2 2022-23 is projected to complete its Parliamentary process in June 2023. The bill’s journey can be tracked here, while the current policy paper is available here.
The Proposed Changes to the SEIS Rules and Their Implications
The proposed amendments to the SEIS scheme, expected to come into effect on 6 April 2023, have significant implications for both companies and investors. The key changes include:
- Increase in the SEIS funding limit: Businesses will be able to raise up to £250,000 in SEIS funding, a considerable increase from the previous limit of £150,000.
- Extended eligibility period: Companies will now be able to raise SEIS funding within their first three years of trading, extending the previous two-year limit.
- Increased gross asset limit: To qualify for SEIS funding, a company must now have less than £350,000 in gross assets, an increase from the previous limit of £200,000.
- Increase in the annual investor limit: Individuals will be able to invest up to £200,000 in SEIS companies, a significant increase from the previous limit of £100,000.
It's important to note, however, that these changes will only come into effect after the Bill receives Royal Assent.
When Can HMRC Act On The New Rules?
While the SEIS changes apply from 6 April 2023 onwards, the full activation awaits the bill's Royal Assent, expected in July 2023. So, it is a little complicated – the SEIS changes will be applied from 6th April 2023, but only as and when the bill becomes law.
HMRC (HM Revenue & Customs) plays a crucial role in the implementation of these changes as it provides the SEIS/EIS certificates for investors and issues Advance Assurances for startups that seek funding through SEIS/EIS. Because the bill is still going through parliament, HMRC is not yet able to provide the SEIS1 compliance statements.
Implications for Investors
While the bill is still passing through parliament, investors can already invest under the new rules as they apply from 6 April onwards, meaning up to £200,000 per tax year.
However, the SEIS changes will only be implemented if the bill receives the Royal Assent, which is expected in July 2023.
Implications for Startups
While the SEIS changes are nearly here, they are not yet law. So, HMRC cannot yet fully operate under the new rules. The implications are as follows:
- Startups can already raise up to £250,000 in SEIS. However, if you raise more than £150,000 you might have to wait until July to complete the SEIS compliance.
- Until Royal Assent: HMRC might only provide Advance Assurance under the old rules (max. £150,000).
- After Royal Assent: HMRC will provide Advance Assurance under the new rules (max. £250,000).
An additional factor to consider is that the present lag in the approval of SEIS compliance statements could lead to a subsequent delay in the EIS compliance process. Given that companies must submit their EIS compliance statements only after the approval of any SEIS compliance statements, any slowdown in the SEIS process could inherently defer the EIS procedure.
Awaiting the Final Verdict
The proposed changes to the SEIS rules as part of the Finance Bill No. 2 2022-23, hold the potential to transform the financial landscape for UK startups and investors. However, with the Bill still under debate, businesses and venture capital firms must tread carefully until the legislation is enacted. As the Bill progresses through its Parliamentary process, it's crucial to stay updated and prepare for the potential changes.
Find more information and track the progress of the Bill here.
