- The Seed Enterprise Investment Scheme and the Enterprise Investment Scheme aim to encourage innovation and help businesses raise funds through the provision of tax reliefs on investments.
- SEIS - To qualify, companies must have fewer than 25 employees, their gross assets must total less than £200,000 at the time of shares being issued and they cannot have traded for more than 2 years. Companies can raise a maximum of £150,000 under the SEIS in their lifetime.
- EIS - At the time of investment, companies must have fewer than 250 employees, gross assets must total no more than £15 million and it must have been more than seven years since their first commercial sale. Companies can raise a maximum of £5 million in any 12 month period and up to a maximum of £12 million in the company’s lifetime.
- Qualifying trades - Companies in certain industries are excluded from the two schemes. They are only excluded if +20% of their trading activities are comprised of non-qualifying trades.
- Spending investment - There are limitations as to how you can spend money you have received through SEIS and EIS.
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two initiatives introduced by the government to encourage innovation and help small, early-stage businesses raise funds from individual investors through the provision of a series of tax reliefs on investments made into qualifying companies.
This is achieved by awarding tax relief to private investors when they invest in SEIS and EIS qualifying companies under the scheme.
In order to obtain SEIS or EIS investment, any capital raised by a company must be used for a ‘qualifying business activity’, for example, research & development, hiring, marketing or product development.
Whilst similar, there are some key differences between the two schemes.
SEIS focuses on helping very early-stage companies raise capital. The rules surrounding what type of company qualifies for SEIS investment can be complex but generally speaking companies must be small (have fewer than 25 employees and gross assets total less than £200,000 at the time of shares being issued) and have traded for a maximum of 2 years.
Some companies are also excluded from the scheme. These include but are not limited to companies that operate in industries such as land, banking, legal, accountancy, commodities, exporting and/or generating electricity, insurance, money-lending or other financial services, property development or leasing activities (see more here). Companies are only excluded if +20% of their trading activities are comprised of non-qualifying trades. You can view a full list of non-qualifying trades and more information here.
Companies can also only raise a maximum of £150,000 in their lifetime under the SEIS.
Shares issued under the SEIS scheme must be new, full risk ordinary shares which are not redeemable and carry no special rights. The money you raise from the SEIS must also be spent within 3 years of the shares being issued.
You must spend the money on either a qualifying trade, preparing to carry out a qualifying trade and/or research and development that’s expected to lead to a qualifying trade. You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity and the money must pose a risk of loss to capital for the investor.
Like the SEIS, the EIS benefits companies by making them look more attractive and be less of a risky investment opportunity for investors.
The EIS is focused on medium-sized startups and, as with the SEIS, there are rules that determine whether a company qualifies for the EIS.
At the time of investment, companies must have fewer than 250 employees, gross assets must total no more than £15 million and it must have been more than seven years since their first commercial sale (if you have any subsidiaries, including former subsidiaries, or businesses you’ve acquired, the date of the first commercial sale is the earliest of the group). There may be higher limits if your company carries out research, development or innovation and meets certain conditions.
The principles of exclusion based on trades and proportion of trading activity that apply to the SEIS also apply to EIS (see above).
Again, like the SEIS, limits are in place to restrict how much a company can raise. Under the EIS, companies can raise a maximum of £5 million in any 12 month period and up to a maximum of £12 million in the company’s lifetime.
Shares issued under the EIS must be new, full risk ordinary shares which are not redeemable and carry no special rights. Any money raised through the EIS must also be spent within 2 years of the investment or, if later, the date trading started.
Money raised under the EIS can not be used to buy all or part of another business, must pose a risk of loss to capital for the investor and be spent on either a qualifying trade, preparing to carry out a qualifying trade and/or research and development that’s expected to lead to a qualifying trade.
Issuing SEIS & EIS share certificates
If a funding round involves both funding obtained through the SEIS and EIS, then SEIS shares must be issued before the EIS shares. This means that SEIS share certificates must be issued at least one day before the issuing of EIS share certificates.
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