The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are UK government initiatives designed to encourage investment in small, high-risk companies.

They work by offering investors generous tax incentives when they buy new shares in eligible businesses.

• SEIS is for very early-stage companies under 3 years old, with fewer than 25 employees and assets under £350k. Investors can claim 50% income tax relief on up to £250k invested in total across eligible companies.
• EIS is for slightly more established companies under 7 years old, with fewer than 250 employees and assets under £15m. Investors can claim 30% income tax relief on up to £1m per year, or £2m if investing in Knowledge Intensive Companies.

Both schemes can also provide Capital Gains Tax exemptions, loss relief, and potential inheritance tax advantages.

For Investors:
SEIS and EIS can reduce your tax bill while giving you access to high-growth opportunities. Benefits include:

• Income Tax Relief: Reduce your income tax by up to 50% (SEIS) or 30% (EIS).
• Capital Gains Tax Exemption: Pay no CGT on profits after holding shares for 3 years.
• Loss Relief: If the company fails, you can offset the loss against income or capital gains.
• CGT Deferral: With EIS, you can defer tax on other capital gains.

For Founders:
Having SEIS or EIS status, or Advance Assurance from HMRC, can make fundraising easier. Many investors will only consider companies that qualify as it reduces their investment risk.

Advance Assurance shows you meet the eligibility rules before investors commit, avoiding costly surprises later.

Qualification depends on whether you are the company or the investor.

For Companies:

• SEIS:
  
  • Trading for under 3 years
  • Less than £350k in gross assets
  • Fewer than 25 employees
  • Qualifying trade (no excluded activities such as banking or property development)
  • Not previously raised more than £250k under SEIS
• EIS:
  
  • Trading for under 7 years (or 10 for Knowledge Intensive Companies)
  • Less than £15m in gross assets
  • Fewer than 250 employees (500 for KICs)
  • Qualifying trade
  • Lifetime limit of £12m raised under EIS (or £20m for KICs)

For Investors:

• Must be a UK taxpayer
• Cannot own more than 30% of the company (including shares held by associates)
• Cannot be an employee, with exceptions for qualifying directors
• Shares must be fully paid in cash and held for at least 3 years

Yes, in some cases. Founders and directors can qualify for SEIS or EIS if they meet certain rules:

• You cannot be a paid employee before the share issue, but you can be a qualifying director (usually unpaid initially or appointed after the investment).
• You must not own more than 30% of the company’s shares, including shares held by your spouse, parents, or children.
• The investment must be in new, fully paid shares and held for 3 years.

Many founders invest their own money alongside external investors, but the structure must be correct to avoid disqualification.

Advance Assurance is a letter from HMRC confirming that your company is likely to qualify for SEIS or EIS if it issues shares as described in your application.

Why it matters:

• For investors, it is proof that their investment should qualify for tax relief, reducing risk.
• For founders, it removes uncertainty and strengthens your fundraising pitch. Many investors will not commit without it.

How to apply:

1. Prepare documents including business plan, financial forecasts, details of the investment, company information, and shareholder structure.
2. Complete HMRC’s Advance Assurance form, clearly stating whether you are applying for SEIS, EIS, or both.
3. Include a sample investor. HMRC often asks to see at least one named prospective investor, although some applications can proceed without this.
4. Submit online or by post. 

Getting this right the first time is important. Errors or missing documents can delay approval and frustrate investors. Our Investor Enhance service manages the process end-to-end, ensuring your application meets HMRC’s expectations and avoids unnecessary delays.

Once your company has raised under SEIS or EIS, staying compliant with HMRC’s rules is essential to protect investor tax relief.

Key steps to maintain SEIS/EIS eligibility include:

• Continue trading in a qualifying trade and avoid excluded activities.
• Do not exceed the maximum gross assets or employee limits after the investment.
• Use the funds for qualifying business activities within the time limits, usually within 2 years.
• Keep accurate records for HMRC, including share allotments, investor details, and how funds are used.

Failure to follow these rules can result in HMRC withdrawing SEIS/EIS status, which can cause investors to lose tax benefits and damage your fundraising reputation. Investor Enhance provides ongoing compliance monitoring to avoid this risk.

Changing your company’s structure after SEIS/EIS approval can impact investor tax relief.

• Issuing new share classes, reorganising shareholdings, or taking on a controlling shareholder can trigger a compliance breach.
• Mergers or acquisitions must be structured carefully to preserve reliefs.

Before making significant changes, seek professional advice to ensure your SEIS/EIS approval remains valid. Investor Enhance can review proposed changes and liaise with HMRC if needed.

A SEIS1 or EIS1 compliance statement is a form you submit to HMRC after issuing shares under the SEIS or EIS schemes. It confirms that your company has met the rules and that the investors are entitled to claim tax relief.

When to submit:

• You can only submit a compliance statement after you have traded for at least 4 months or spent at least 70% of the funds raised.
• The form must be completed accurately with details of the company, the investment, and the investors.

Once HMRC approves your SEIS1 or EIS1, they will issue SEIS3 or EIS3 certificates to your company, which you then send to investors so they can claim relief. Errors or delays in this process can cause investors to miss tax deadlines, so it is important to handle it correctly.

HMRC can withdraw SEIS/EIS tax relief if your company or investors break the rules after the investment.

Common reasons include:

• Using investment funds for non-qualifying activities or outside the allowed timeframe.
• Changing the trade to an excluded activity.
• Exceeding the maximum company size or asset thresholds.
• Providing investors with additional benefits or guarantees linked to their shares.
• Issuing shares that do not meet SEIS/EIS requirements (e.g., preference shares).

Losing SEIS/EIS approval not only affects investor tax relief but can damage your reputation with the investment community. Regular compliance reviews help avoid these issues. Investor Enhance offers a SEIS/EIS health check to identify and correct potential breaches before HMRC steps in.

After HMRC approves your SEIS1 or EIS1 compliance statement, they will send you SEIS3 or EIS3 certificates. These certificates are what your investors need to claim their SEIS or EIS tax relief.

Steps to issue SEIS3/EIS3 certificates:

1. Review the certificates from HMRC for accuracy. Check the investor names, amounts invested, and share details.
2. Distribute each certificate to the relevant investor. This can be done electronically or in hard copy.
3. Keep a record of when and how you sent the certificates in case of HMRC queries.

Important: You cannot issue SEIS3 or EIS3 certificates until HMRC approves your compliance statement. Any errors in issuing certificates can delay investor tax claims or trigger HMRC investigations.

Investor Enhance can manage the SEIS3/EIS3 process for you, ensuring certificates are issued correctly and on time, keeping both your investors and HMRC satisfied.

If a SEIS or EIS company fails, UK investors can claim loss relief to reduce the financial impact of their investment. This process allows you to offset your net loss against income tax or capital gains tax.

How SEIS/EIS loss relief works:

1. Calculate the net loss by subtracting the initial tax relief already received (50% for SEIS, 30% for EIS) from the total investment.
2. Offset the remaining loss against your income tax bill at your marginal rate, or against other capital gains.
3. Submit the claim through your Self Assessment tax return, providing your SEIS3 or EIS3 certificate and evidence of the loss.

Loss relief can significantly reduce your actual loss, sometimes by more than half. Investor Enhance can prepare the claim paperwork and ensure HMRC processes it without delays.

Closing a SEIS/EIS company requires careful planning to ensure investors keep their tax relief.

Steps to protect SEIS/EIS benefits when winding up:

• Choose the right liquidation method: Members’ Voluntary Liquidation (MVL) for solvent companies, or Creditors’ Voluntary Liquidation (CVL) for insolvent ones.
• Maintain all qualifying SEIS/EIS conditions up to the closure date.
• Provide investors with documentation so they can claim loss relief if applicable.

If the winding-up process is not handled correctly, HMRC may withdraw investor relief. Investor Enhance offers a Clean Exit Package that uses our licensed insolvency practitioner expertise to protect investor tax benefits during company closure.

You can restructure a SEIS/EIS company without losing investor relief, but only if the changes comply with HMRC’s rules.

High-risk restructuring actions include:

• Share reorganisations that give certain shareholders preferential rights.
• Mergers or acquisitions that result in significant ownership changes.
• Changing the main trade to an excluded activity such as property development or financial services.

Before restructuring, you can get our Investor Enhance SEIS/EIS compliance review to avoid breaching the scheme’s conditions. Investor Enhance can analyse your plans and liaise with HMRC to protect investor benefits.

Selling a SEIS/EIS company can affect investor tax relief, especially if it happens before the 3-year minimum holding period required by HMRC.

Factors that affect relief when selling:

• Whether the sale is structured as a share sale or an asset sale.
• If investors continue to hold their shares until the 3-year period is completed.
• Whether the buyer continues to meet SEIS/EIS qualifying trade requirements.

Investor Enhance provides transaction guidance to minimise the risk of losing relief during a sale.

An MVL is used to close a solvent SEIS/EIS company and return funds to shareholders in a tax-efficient way. A CVL is used for insolvent companies when debts cannot be repaid in full.

Key SEIS/EIS considerations for MVL or CVL:

• Confirm all scheme conditions were met up to the closure date.
• Ensure proper HMRC reporting so investors can keep or claim tax relief.
• Work with an insolvency practitioner experienced in SEIS/EIS rules.

Investor Enhance uses our knowledge and experience as licensed insolvency practitioners to manage MVLs and CVLs, ensuring compliance with HMRC requirements and protecting investor tax benefits.