The SEIS (Seed Enterprise Investment Scheme) was formed by HMRC in early 2012 with the aim of helping smaller, start-up businesses to raise finances via investors. This is done by putting tax relief on investors, which aids the development of companies which qualify. This scheme enables companies to claim relief of up to £100,000 invested per year. This means they could collect relief totalling 78% or more of their investment. Companies that qualify for SEIS can be invested in either indirectly (via a SEIS fund), or directly. The Seed Enterprise Investment Scheme offers a range of different tax reliefs for potential investors. These range from loss relief, to avoidance of Capital Gains and automatic reductions.
The Seed Enterprise Investment Scheme provides investors with loss relief should the business fail (regardless of whether this falls within the hold period of 3 years), as well as capital gains exemption on earnings through shares, relief of 50% of the total investment (via individual income tax), and exemption from capital gains on profits created within 3 years (having been reinvested into the SEIS). The regulations regarding the kind of business that can qualify for SEIS investment can be complex, with many very particular conditions – but we wouldn’t expect you to know all of this. That’s our job!
Nordens can help you navigate the often confusing world of the SEIS, helping you approach business confidently and with a little bit more know-how under your belt. Whether you’re confused about tax brackets or applicable tax reliefs, Nordens come to the table with a wealth of financial and business insight geared at helping you save those pennies, speed through the SEIS process with accuracy and succeed where it matters most. Why not ask us about the ‘advance assurance’ application process to see if your business is eligible for SEIS today?
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Here at Nordens, we know that understand the ins and outs of SEIS can be bewildering. We receive questions almost everyday from business owners unsure of the very same things. That’s why we wanted to shed a little more light on the matter:
The following rules need to be adhered to (for 3 years or more), otherwise, any tax reliefs may be removed:
• The company must be committed to a new qualifying trade
• It must have been formed within the UK
• It is – at the time of issuance – an unquoted company and isn’t planning on becoming one
• It has gross assets which total less than £200,000
• It is not controlling any other business, other than qualifying subsidiaries
• It isn’t a member of a partnership, or is a qualified subsidiary
• It is not under the control of any other company or companies
• It has – at the time of the issuance – under 25 employees working full-time
• It has not in the past, nor is currently receiving any investment by either a Venture Capital Trust or the Enterprise Investment Scheme
• It must spend the finances raised from the investment on the eligible company activity within 3 years of the issuance of the shares
• Before the issuing, must make sure that any investment is the first subject to the EIS or VCT scheme
Those investing mustn’t hold – either directly or indirectly – over 30% of the business’s regular share capital, (as well as its issued share capital) or voting rights. Any investors who are also employees of the company will not be able to benefit, either. However, new or current directors can qualify for this. Regardless of whether the business meets each of the required criteria, it won’t have eligibility if the investment is not for realistic, commercial purposes, and is for tax avoidance purposes.
The kind of shares that are eligible for SEIS relief must be new shares without special rights assigned to them. They have to be subscribed only in cash (meaning that the consideration must not be through other assets), and this cash needs to be paid fully before the issuance of the shares.
The aim of the shares being issued, is primarily for the raising of money for a qualifying company. The finances that are raised have to be used in a qualifying trade, and continued on by the parent company (or 90% subsidiary), within 3 years.
Shares that were issued either on or after 15th March 2018, must meet the condition known as ‘risk to capital’, so the SEIS relief can be made available. This condition is a way of excluding investments which are created to maintain capital for investors.
If this condition is adhered to – keeping in mind all the other circumstances – it would be a fair conclusion that the issuing company has targets to expand and innovate its trade over a longer scale of time. For the investor, therefore, it could become a risk that they would lose a larger amount of capital when comparing it with their Net Investment Return.
The Compliance Statement form is used by the business undergoing investment to verify that specific conditions within the scheme are upheld. The Compliance Statement form can’t be submitted until:
• More than 70% of the money raised by the issued share is used solely for reasons relating to the activities of the qualifying company
• The new qualifying business (which consists of the qualifying trade activity, or by which the specific activity relates to) has been undertaken for over 4 months by either the business issuing the shares or a subsidiary of that company, holding a qualifying 90%
• If the decision is made not to commence with the investment, or, that it may not be meeting the required SEIS conditions, then you are able to review and possibly appeal against this decision
• A covering letter
• The SEIS advance assurance form (if this has been applied for)
• A business plan
• A note of any minimal aids you may have received
• Your tax reference number
• A shareholders agreement
• The company accounts
• The amount which is looking to be raised
• Articles of Association
• An outline of the purpose of these finances
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