A Comprehensive Guide to SEIS Fundraising

The Seed Enterprise Investment Scheme (SEIS) is a fantastic opportunity for startups to raise capital while offering substantial tax benefits to investors. Introduced by the government in 2012, SEIS is designed to encourage investment in small and early-stage companies, providing a crucial lifeline for businesses in their nascent stages.

Here’s an in-depth look at SEIS fundraising, from eligibility criteria to the benefits for both companies and investors.

What is SEIS?

SEIS is a government initiative that offers tax relief to individual investors who purchase new shares in small, early-stage companies. The scheme aims to make investing in these companies more attractive by mitigating some of the financial risks involved.

Key Benefits of SEIS for Companies

1. Attracting Investors: The significant tax reliefs available under SEIS make investing in your company more appealing to potential investors.
2. Raising Capital: Companies can raise up to £150,000 through SEIS funding.
3. Enhanced Credibility: Being SEIS-approved can enhance your company's credibility, making it easier to attract further investment.

Key Benefits of SEIS for Investors

1. Income Tax Relief: Investors can claim up to 50% income tax relief on the amount invested, up to a maximum annual investment of £100,000.
2. Capital Gains Tax Relief: If SEIS shares are held for at least three years, any gain on the shares is exempt from Capital Gains Tax.
3. Loss Relief: If the investment doesn’t perform well, investors can claim loss relief against their income tax.
4. Capital Gains Reinvestment Relief: Investors can defer or reduce Capital Gains Tax liabilities on gains from other investments if they reinvest those gains in SEIS-eligible shares.

Eligibility Criteria for Companies

To qualify for SEIS, a company must meet specific criteria:

1. Company Size: The company must have fewer than 25 full-time employees.
2. Gross Assets: The company's gross assets must not exceed £200,000.
3. Trading Activity: The company must be carrying out a new qualifying trade, less than two years old, and not be listed on a recognised stock exchange.
4. UK Residency: The company must have a permanent establishment in the UK.
5. Independence: The company must not be under the control of another company and must not control another company, except for qualifying subsidiaries.

Steps to Raising Funds Through SEIS

1. Check Eligibility: Ensure your company meets all the SEIS requirements. Consulting with a tax advisor or accountant can be helpful.
2. Prepare Your Business Plan: A comprehensive business plan is crucial to attract investors. It should clearly outline your business model, market opportunity, financial projections, and how you plan to use the SEIS funds.
3. Advance Assurance: While not mandatory, obtaining advance assurance from HMRC can reassure potential investors that your company qualifies for SEIS. To apply, submit the SEIS Advance Assurance Form (SEIS1) along with your business plan and relevant documents.
4. Secure Investment: Once you have assurance (if applicable), you can start pitching to investors. Highlight the SEIS benefits to make your investment proposition more attractive.
5. Issue Shares and Submit SEIS1 Form: After securing investment, issue the shares to your investors and submit the SEIS1 form to HMRC to receive SEIS compliance certificates (SEIS3 forms) for your investors.
6. Ongoing Compliance: Maintain compliance with SEIS rules to ensure your investors retain their tax reliefs. This includes adhering to the qualifying trading activities and not exceeding the gross assets and employee limits.

Common Pitfalls to Avoid

1. Non-Qualifying Activities: Engaging in non-qualifying trades, such as dealing in land or financial services, can disqualify your company from SEIS.
2. Missing Deadlines: Ensure all necessary forms and documents are submitted to HMRC on time to avoid losing SEIS status.
3. Changes in Company Structure: Significant changes in your company's structure or trade can affect SEIS eligibility. Always consult with a professional before making such changes.

SEIS fundraising is a powerful tool for early-stage companies seeking capital. By offering attractive tax incentives, SEIS not only helps businesses secure much-needed funds but also reduces the financial risk for investors. If you’re an entrepreneur looking to grow your startup, understanding and leveraging SEIS can provide the financial boost and investor confidence you need to succeed. Always ensure compliance with the scheme’s requirements and consider seeking professional advice to navigate the complexities of SEIS fundraising effectively.

Wright Hassall are experienced legal advisors in relation to all types of investments, if you are considering raising capital or providing funding, we would love to hear from you to discuss your options in detail.

The information provided in this article is provided for general information purposes only, and does not provide definitive advice. It does not amount to legal or other professional advice and so you should not rely on any information contained here as if it were such advice.

Wright Hassall does not accept any responsibility for any loss which may arise from reliance on any information published here. Definitive advice can only be given with full knowledge of all relevant facts.  If you need such advice please contact a member of our professional staff.

The information published across our Knowledge Base is correct at the time of going to press.