For many, the beginning of the new year is a time for reflection and planning, an opportunity to set out your goals for the upcoming months. For many businesses, this will probably include strategising for the year ahead, and outlining how you’ll achieve the best outcomes by December. With this in mind, we thought the first Tax Tuesday of 2023 would be the ideal to shine a light on the Seed Enterprise Investment Scheme (SEIS).
Introduced in 2011, SEIS is a government venture capital scheme designed to help businesses raise money when they first start to trade. The scheme offers individual investors tax reliefs when buying new shares in a business, and was designed to support economic growth in the UK. In Jeremy Hunt’s Autumn Statement in November 2022, which was designed with the intention of stabilising the UK’s economy, he announced several changes to SEIS. These include an increase in the maximum investors can place, gross asset limit, the age limit, and the annual investor limit.
At the moment, businesses can receive a maximum of £150,000 through SEIS, however this is set to change in April this year, when it will increase by two-thirds to £250,000. This allowance includes any other de minimis (small amounts) state aid the business has received in the three years before and including the date the investment is made. Not only this, but it also counts towards the limits which may arise through other venture capital schemes the business may join at a later stage. There are also various rules that the business must follow, so that the investor is able to claim and keep SEIS tax reliefs relating to their shares. If these rules aren’t followed by the business for at least three years after the investment is made, tax reliefs will be withheld or withdrawn from the investor.
Who can use the scheme?
Not all businesses can use SEIS. You can apply to use the scheme if your business:
- carries out a new qualifying trade
- is established in the UK
- is not trading on a recognised stock exchange at the time of the share issue
- has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
- does not control another company unless that company is a qualifying subsidiary
- has not been controlled by another company since the date of your company being incorporated.
Not only these, but the company and any of its subsidiaries must:
- not have any gross assets over £200,000 when the shares are issued
- not be a member of a partnership
- have less than 25 full-time equivalent employees in total when the shares are issued.
It’s also important to note that if a business has previously received investment through the Enterprise Investment Scheme (EIS) or from another venture capital trust, you cannot use SEIS.
How should SEIS investments be used?
As with most government schemes there are specific ways the investments from SEIS must be used. They should be spent on either:
- a qualifying trade
- preparing to carry out a qualifying trade
- research and development that is expected to lead to a qualifying trade.
The investment must not be used to buy shares, unless they are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.
What counts as a new qualifying trade?
If the business is already carrying out a qualifying trade, to apply for SEIS, it must have been carried out for less than two years by both:
- your company
- any other person who then transferred it to your company
On top of this, your company and any qualifying subsidiaries must not have carried out any other trade before starting the new trade for the business. The trade must also be treated as a commercial business with the aim of making profits, but if it consists of mostly an excluded activity it will not qualify.
It’s a good idea for a business to get an advance assurance from HMRC before entering SEIS, this suggests whether they are likely to qualify before the investment goes ahead. Once the shares have been issued, a compliance statement must be submitted to HMRC. A separate compliance statement must be completed for each share issue, and one can only be submitted when the business has:
- carried out their qualifying business activity for 4 months
- spent at least 70% of the amount raised by the relevant share issue.
Following a successful application, HMRC will send the business a letter and compliance certificates to give to their investors. This letter will contain a unique investment reference number which must also be shared with the investors – they need this and the certificate to claim tax relief.
Should HMRC reject an application, they will explain why and the business can appeal this or ask for a review of the decision.
How can we help?
Questions? Contact our team on email@example.com or call 0161 905 1616.