Table of Contents
In Short
- SEIS suits very early-stage startups needing initial funding, offering up to £250,000 and significant tax reliefs.
- EIS is ideal for more established companies seeking larger investments, up to £12 million.
- Compliance with HMRC requirements is crucial for securing these benefits.
Tips for Businesses
Consider SEIS if you’re a pre-revenue startup or EIS for substantial growth funding. Ensure your business meets the eligibility criteria, and seek professional advice to avoid HMRC issues. Advance assurance can boost investor confidence by securing their tax relief benefits.
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two UK government-backed initiatives that help startups attract investors. Both schemes are designed to encourage investment in early-stage businesses by offering significant tax reliefs to those who invest. Choosing the most suitable scheme for your startup can be crucial for founders as both have different eligibility requirements. This article will explain the key differences between the SEIS and the EIS, helping you to decide which scheme is best for your business.
Understanding SEIS and EIS
The Seed Enterprise Investment Scheme targets very early-stage startups (less than two years old) looking to raise up to £250,000. It offers substantial tax relief to investors, making it highly attractive for those willing to take a risk on a new business.
The following table outlines the key features of the SEIS.
| Feature of the SEIS | Explanation |
| Investment cap | You can raise up to £250,000 in total through the SEIS. |
| Tax relief | Investors can claim up to 50% income tax relief on investments up to £100,000 per tax year. |
| Capital Gains Tax (CGT) relief | When an investor reinvests all or part of a gain they make from disposing of an asset in qualifying SEIS shares, a maximum of 50% of that gain (up to £50,000) is exempt from CGT. |
| Loss relief | Investors can offset losses against their taxable income, significantly reducing their financial risk. |
However, the Enterprise Investment Scheme targets more established startups looking to raise more significant sums, up to £12 million over the company’s lifetime. It is suitable for businesses that have moved beyond the initial seed stage.
The following table outlines the key features of the EIS.
| Feature of the EIS | Explanation |
| Investment cap | You can raise up to £5 million annually, with a total lifetime cap of £12 million. |
| Tax relief | Investors can claim income tax relief on 30% of their investment, up to £1 million per tax year or up to £2 million if they invest in a ‘knowledge-intensive’ company. |
| CGT deferral relief | Investors can defer CGT liability on gains by reinvesting them into EIS-qualifying companies. |
| Loss relief | Like the SEIS, investors can offset losses against their taxable income, significantly reducing their financial risk. |
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Choosing the Right Scheme for Your Startup
1. Business Stage
The primary consideration when choosing between SEIS and EIS is the stage of your business and your funding requirements. SEIS typically suits pre-revenue or very early-stage companies that need initial capital to get off the ground. In contrast, EIS is more appropriate for businesses that have already established some traction and require more substantial funding for growth.
2. Investor Appeal
While SEIS offers more significant tax reliefs, which can be enticing for investors looking to support very young companies, EIS can attract a broader range of investors because of its higher investment cap and the potential for funding at a later stage.
3. Compliance and Eligibility
Understanding each scheme’s eligibility requirements is crucial to avoid issues with HMRC approval and your investors’ ability to enjoy tax relief. Both have strict criteria, but the SEIS’ are more restrictive. For example, to qualify for SEIS, your company’s assets must not exceed £350,000, and you must have fewer than 25 employees. On the other hand, EIS allows for greater flexibility as the limit on an eligible company’s gross assets is £15 million, and you can have up to 250 employees.
For both schemes, your company must also meet the ‘risk to capital’ condition, which means that your investors’ investment in your company must carry significant risk. This condition ensures that only companies that intend to expand and develop can utilise the schemes.
Whether you opt for SEIS or EIS, obtaining advance assurance from HMRC is valuable. Advance assurance means that HMRC approves that an investment would meet the conditions of the scheme subject to additional conditions. If your company receives advance assurance, your investor will have confidence that their investment qualifies for tax relief, making it easier to attract funding.
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Key Takeaways
Choosing between SEIS and EIS depends on your startup’s stage of development and funding needs. SEIS is best for very early-stage companies seeking relatively small amounts of funding, while EIS suits more established startups that need substantial capital. Legal compliance, especially concerning eligibility and fund usage, is critical to secure and maintain these reliefs. Seeking advance assurance and adhering to the rules can help ease fundraising and attract the right investors.
If you require legal advice about the SEIS, EIS, or funding your startup, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is the difference between SEIS and EIS?
SEIS is best for very early-stage companies seeking small amounts of funding, while EIS suits more established startups that need substantial capital.
Are there strict eligibility criteria for SEIS and EIS?
Both have strict criteria, but the SEIS’ are more restrictive. For example, to qualify for SEIS, your company’s assets must not exceed £350,000, and you must have fewer than 25 employees. EIS allows for greater flexibility as the limit on an eligible company’s gross assets is £15 million, and you can have up to 250 employees.
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