What is SEIS and how can startups benefit?

Full Explanation

The Seed Enterprise Investment Scheme (SEIS) gives UK individual investors 50% income tax relief on up to £200K a tax year invested in qualifying early-stage companies, which can raise up to £250K in total under the scheme.

SEIS targets companies at the very start of trading. Under HMRC's current guidance (the limits that have applied since 6 April 2023), the company must be carrying on a new qualifying trade that has not been carried on for more than 3 years, have gross assets of no more than £350,000 and fewer than 25 full-time equivalent employees when the shares are issued, and spend the money within 3 years. It can raise a maximum of £250,000 through SEIS. Certain activities, such as financial services and property development, are excluded.

For investors, 50% income tax relief applies to up to £200,000 invested in a tax year, so a £50,000 investment can reduce the investor's income tax bill by £25,000. Gains on SEIS shares can be free of Capital Gains Tax if the shares are held for at least 3 years, and SEIS also offers Capital Gains Tax reinvestment relief on 50% of the amount invested. The shares must be held, and the company must follow the scheme rules, for at least 3 years or the relief can be withdrawn.

For founders, SEIS reduces the investor's net cost, which makes small pre-seed cheques easier to raise; many companies apply for advance assurance from HMRC before the round. Once a company outgrows the SEIS limits, the Enterprise Investment Scheme (EIS) becomes the relevant scheme. Limits change from time to time: check HMRC's current guidance on gov.uk and take advice before relying on relief. This is general information, not tax advice.

Related Questions