What is the Seed Enterprise Investment Scheme (SEIS)?

As a startup company, one of your early business goals may be to raise capital so you can scale your operations and further develop your product. However, attracting investors is frequently difficult because they may be reluctant to invest in start-up businesses because of the associated risks. However, the UK government-backed Seed Enterprise Investment Scheme (SEIS) gives generous tax relief to potential investors in small companies. Therefore, you may value knowing how the SEIS works and whether your company may qualify.  This article will explain some key points about SEIS. 

What is the SEIS?

The Seed Enterprise Investment Scheme (SEIS) is one of the venture capital schemes supported by the UK government. The intent behind the scheme is to connect early-stage investors with companies less than two years old by providing investors with tax breaks. 

How Does the SEIS Work?

As mentioned, SEIS works as an incentive by providing tax relief. It also offers loss relief, which means that if your company does not make a profit or is wound up, the investor can reclaim some of its investment.

There are several limits on the scheme, which include:

• your company must have traded for at least two years;
• no more than £100,000 of investment is covered by the scheme; 
• your company can only receive SEIS tax breaks on investments that total £150,000;
• your company must not be the recipient of other government-backed venture capital schemes;
• your investors must structure the investment in their personal capacity rather than through a company or limited partnership; 
• the investment must be spent on a ‘qualifying activity’ within three years of receiving the investment;
• your company must carry out a ‘new trade’, rather than continuing an existing trade.

Will SEIS Relief Apply to My Company?

SEIS relief only applies to certain companies. The qualification criteria include::

• your business must not be a listed company; 
• it must be established in the UK; 
• your business cannot hold shares in other companies; 
• the gross value of your business’ assets must not exceed £200,000;
• your business must employ fewer than 25 employees; 
• your business must not be part of a partnership; and
• your business must not have been controlled by another company since it was incorporated.

If you do not satisfy all of these conditions, your business will not be eligible. Additionally, it must satisfy all these conditions when it issues shares to investors. Otherwise, it will not qualify for SEIS relief. 

What Are The Benefits of the SEIS?

SEIS offers great benefits to your business, as it can help you secure capital and funding from the seed stage of your company. It is often difficult to get funding at this stage, so the SEIS scheme is an important avenue to consider if you are looking at raising capital.t

Equally, SEIS is beneficial for the investor. Venture capital investors tend to invest in a portfolio of companies where only a select number bring back a return on investment. Through the SEIS loss relief scheme, they are able to offset against invested companies that go bust. 

As a result, SEIS supported investment is an excellent avenue to pursue if you are an early-stage business looking to secure capital. 

Key Takeaways

As a startup business, your enterprise may qualify for certain government-backed investment schemes, including the share enterprise investment scheme (SEIS). You can improve investor interest by pitching your eligibility for the scheme. As a result, SEIS backed investment will be easier to secure than funding from ordinary shares without any tax relief incentive for the investor. The eligibility criteria are outlined above. It is also worth keeping in mind that your business may be eligible for other venture capital schemes even if you cannot secure SEIS investment. 

Frequently Asked Questions