Companies guide to raising finance through SEIS

The Enterprise Investment Scheme (EIS), Venture Capital Trust Scheme (VCT) and Seed Enterprise Investment Scheme (SEIS) aim to help unquoted companies attract equity investment by offering investors a range of tax incentives. Read more about the benefits to investors of EIS, SEIS and VCTs.

SEIS qualifying companies must:

Be unquoted – although AIM companies do qualify
Have a permanent establishment in the UK
Be independent - not controlled by another company
In contrast to EIS and VCT, directors of SEIS companies can invest; 30% maximum holding limit applies to investors together with their ‘associates’ such as business partners, spouses, lineal relatives but not siblings
Have gross assets of less than £350,000 before the SEIS share issue
Have fewer than 25 full-time equivalent employees
Raise no more than £250,000 per group
Carry on a new qualifying trade (ie one that has been carried on for less than three years) – though certain types of trade are prohibited. See ‘Excluded companies’ below
Not have raised any money under the EIS or VCT schemes. However, a company which has issued SEIS shares can then go on to raise further investment from EIS and/or VCT investors

Excluded activities/companies

Companies whose trades consist substantially, defined as more than 20%, of the following activities are excluded from SEIS:

Dealing in land, in commodities or futures, or in shares, securities or other financial instruments
Dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution
Banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities
Leasing including letting ships on charter or other assets on hire, or receiving royalties or licence fees. Exceptions are made for intangible assets created by the issuing company or its subsidiaries
Providing legal or accountancy services
Farming and market gardening, woodlands and timber production
Property development
Operating and managing hotels and nursing homes
Coal production
Steel production
Shipbuilding
All energy generating and supply and creating fuel
Providing services to a connected person conducting one of the above trades

Qualifying shares

The shares issued must be full risk, ordinary shares with no preferential rights. No linked loans are allowed, and there must be no protection offered to shield investors from risk. They must be subscribed for in cash and fully paid up at time of issue.

How does the company obtain SEIS qualifying status? – SEIS1 and SEIS3

Many potential investors will want some form of comfort that their investment will qualify for the SEIS tax reliefs.

It is possible, and recommended, to obtain ‘advance assurance’ from HMRC before issuing shares to investors. Advance assurance is not a requirement of the SEIS and does not guarantee that a share issue will qualify. However, it is useful both in attracting investors and in resolving any potential issues before it is too late. Many potential investors will insist on advance assurance.

Once shares have been issued, the Company has carried on the new qualifying trade for four months, and spent 70% of the amount raised, the Company makes a declaration on an ‘SEIS1’ form, providing details of the investors to HMRC. If HMRC approve, the company will be authorised to issue the ‘SEIS3’ certificate to investors which enables them to claim their tax reliefs.

How can we help with SEIS?

We can help your company attract equity investment by guiding you through the minefield of tax legislation, helping you obtain advance assurance from HM Revenue & Customs and dealing with the compliance side of the process.

If you would like more information about the EIS, VCT, SEIS or other issues surrounding equity investment in your business, please contact your usual BDO contact or David Brookes.