Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)

Posted Wednesday 10th May 2023

SEIS is a UK tax incentive scheme, designed to assist smaller, high-risk companies obtain investment by allowing individual investors commonly referred to as “Angels” to claim back 50% of their investment into a qualifying company as a credit against their income tax liabilities. Additionally, on an exit event, any gain made on a disposal of the shares will not be subject to capital gains tax providing the shares were held for three years.

The requirements for a qualifying company include:

1. being established in the UK;
2. carrying out a new qualifying trade; and
3. issuing full risk ordinary shares carrying no preferential rights.

The government’s Growth Plan, or ‘mini-budget’ announced in September 2022 contained proposals to update the SEIS regime, which were further confirmed in their Autumn Statement given in November 2022. The government’s proposal set out a two-fold strategy, which aimed to increase the number of companies eligible to benefit from the SEIS scheme and enhance the limits for those already taking part.

From 06 April 2023, the following updates will take effect:

1. the maximum limit a company can raise under SEIS will increase from £150,000 to £250,000;
2. the maximum limit of a company’s gross assets will increase from £200,000 to £350,000;
3. the age limit for eligible companies will increase from two to three years; and
4. the maximum amount an Angel investor can invest will increase from £100,000 to £200,000

In our view, these are all very welcome additions.

EIS is a larger tax incentive scheme, for investments received above the SEIS threshold, allowing Angel investors investing into a qualifying company to claim back 30% of their investment as a credit against their income tax liabilities. The EIS scheme was due to end in 2025, under what was known as the “sunset clause”. However, in accordance with the Growth Plan this period is due to be extended.

Companies can obtain provisional confirmation from HMRC that the investments received will be eligible for tax relief by applying for an advance assurance, which despite not being a legal requirement, will provide investors with confidence.

The updates to SEIS and EIS should indeed be welcomed by investors and startup companies alike, who following the use of these schemes have helped establish the UK as one of the world’s leading startup ecosystems.

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This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.

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