SEIS and EIS checker
SEIS and EIS checker introduction
Accessing the SEIS and EIS Checker
You can access the SEIS and EIS Checker here.
What is Seed Enterprise Investment Scheme (SEIS)?
The Seed Enterprise Investment Scheme (SEIS) offers attractive tax incentives to investors investing in new shares in qualifying start-up companies. The aim is to encourage investment in riskier business ventures. The SEIS tax benefits include:
- an investor can reduce their liability to income tax by 50% of the sums invested in SEIS qualifying shares up to an annual investment limit per investor (currently £200k)
- provided that the investor has successfully reduced their income tax liability using SEIS relief, any gains arising on the sale of the SEIS qualifying shares should be exempt from capital gains tax provided that the shares have been held for at least three years
- it may be possible for an investor to benefit from a full or partial deferral of capital gains tax on gains arising on the disposal of assets where a qualifying investment in SEIS qualifying shares is made within specified times scales. As this works as a deferral rather than as a full exemption from tax, the deferred gain will, in broad terms, come back into charge on sale of the SEIS qualifying shares. There are limits on the maximum gain that can benefit from the deferral (currently £200k).
With such tax benefits on offer, the ability to qualify for SEIS will often prove highly attractive to potential investors. However, as is often the case, the SEIS rules are highly complex to ensure that the tax benefits are targeted at businesses that the Government wishes to encourage. It is therefore important to consider all the rules in detail. We would also advise that advance assurance is obtained from HMRC so that the company raising the finance can demonstrate that it currently satisfies the various conditions to would-be investors.
What is Enterprise Investment Scheme (EIS)?
The Enterprise Investment Scheme (EIS) also offers attractive tax incentives. However, the type of company that is able to issue EIS qualifying shares to investors is much wider than under SEIS and the tax incentives are not as attractive to reflect the reduced risk of investment. The EIS tax benefits include:
- an investor can reduce their liability to income tax by 30% of the sums invested in EIS qualifying shares up to an annual investment limit per investor (currently £2m but any investment over £1m must be invested in ‘knowledge-intensive’ companies)
- provided that the investor has successfully reduced their income tax liability using EIS relief, any gains arising on the sale of the EIS qualifying shares should be exempt from capital gains tax provided that the shares have been held for at least three years
- it may be possible for an investor to benefit from an unlimited deferral of capital gains tax on gains arising on the disposal of assets where a qualifying investment in EIS qualifying shares is made within specified times scales. As this works as a deferral rather than as a full exemption from tax, the deferred gain will, in broad terms, come back into charge on sale of the EIS qualifying shares.
EIS is therefore attractive to potential investors. However, as is in the case of SEIS, the EIS rules are highly complex to ensure that the tax benefits are targeted at businesses that the Government wishes to encourage. It is therefore, once again, important to consider all the rules in detail. As with SEIS, we would also strongly encourage a company seeking EIS investment to seek advance assurance from HMRC so that it can demonstrate that it currently satisfies the various conditions to potential investors.
What does our SEIS and EIS Checker do?
As noted above, the rules regarding whether a company can qualify for SEIS, EIS or both are very complicated. We have therefore chosen to develop our Checker so that companies can quickly establish, in broad terms, whether they are likely to qualify for SEIS and/ or EIS.
The Checker is designed to cover most straightforward situations. It is not designed to assist with more nuanced circumstances, for which we would encourage you to seek specific advice from qualified experts.
Please note that the Checker is only designed to consider whether your company is, potentially, a qualifying company for SEIS and/or EIS purposes. In particular, it does not provide any guidance as to whether an individual investor can obtain SEIS and/or EIS relief.
The answers provided by the Checker are only intended as a guide as to whether your company may be suitable for SEIS and/or EIS investment and Birketts LLP accepts no liability in relation to the information contained in the Checker and the results of using the Checker.
As discussed above, we would strongly suggest that any company wishing to issue SEIS and/or EIS qualifying shares seeks advance assurance from HMRC. Birketts LLP is well versed in successfully obtaining advance assurances and we offer a competitive, fixed pricing structure that reflects the nature and complexity of your situation. Please note that obtaining an advance assurance can often take six to eight weeks (depending on how busy HMRC is) so it is something that should be focussed on at an early stage.
Even if our Checker suggests that your company may not qualify for the SEIS and/or EIS schemes, it may be possible to alter your plans to improve the potential to seek SEIS and/or EIS investment. Please do get in touch with a member of the Birketts’ Corporate Tax Team to explore these options further.
