Wednesday, 25 September 2013

SEIS/EIS Funding: How to ensure you are eligible for these funding initiatives

‘Seed Enterprise Investment Scheme’ (SEIS) and ‘Enterprise Investment Scheme’ (EIS) are a series of EU regulated initiatives aimed at incentivising investment into start-up ventures, through numerous tax breaks and other benefits.

On Tuesday 17th September, Sue Crawford and Adrian Jones of Wiggin LLP held a fascinating on SEIS/EIS financing initiatives. They explained the key aspects of both schemes, and highlighted basic requirements and key watch outs for any investor looking to use these types of funding. The pitfalls discussed were a particularly insightful aspect of the presentation with a large emphasis placed on share consideration and the requirement of full written documentation tracking cash payment of shares.  The investors’ ‘exit’ should also be tempered with caution; the start of the trade is considered as the day any shares are issued by the company.

As discussed by Sue and Adrian here are some of the important takeaways of both schemes; EIS provides investors with a 30% tax relief. Other key aspects of EIS include:
  • Income tax relief, if disposal at a loss
  • Maximum total income tax relief of 61.5% 
  • No Capital Gains Tax on disposal, roll over gains
  • Inheritance tax- after 2 years shares qualify as exempt business assets 
Equally some specific requirements for the EIS relief are outlined below:
  • Maximum of £2m per company each year and £1m per investor each year 
  • Company must have gross assets of not more than £15m and not more than 250 employees 
  • Generally not available to employees, directors or their connected persons (except business angels)
SEIS relief can be even more attractive financially than EIS. It offers Income tax relief at 50%:
  • Income tax relief, if disposal at loss
  • Maximum total income tax relief of 72.5%
  • No Capital Gains Tax on disposal, roll over gains
  • Inheritance Tax- after 2 years shares qualify as exempt business assets 
However like EIS relief there are some precise requirements that the investor must adhere to in order to be eligible for SEIS relief, these are summarised below:
  • Maximum of £150,000 per company and £100,000 each year per investor
  • Company must have gross assets of not more than £200,000 and not more than 25 employees
  • Available to directors (and their connected persons) 
In summary the key message of the evening was to take care when it comes to any application for EIS/SEIS relief. All requirements should be satisfied and investors are advised to provide more than the minimum level of documentation, in order to ensure that they comply with the regulations set by HMRC. Investors are also encouraged to seek advice if they have any queries regarding the schemes, and guidance in obtaining relief.