Investment incentives (SEIS and EIS)

Business owners looking for a cash injection can attract investment through two government tax breaks designed to support growth.

Smaller businesses are generally viewed as a higher risk investment. This can be a barrier to them raising capital. The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) provide tax incentives for investors that are designed to encourage equity investment in unlisted trading companies in the UK.

Businesses that register for SEIS or EIS schemes significantly increase their pool of available investors, whilst investors are compensated for taking a greater risk.

Before issuing shares to investors, your business must meet certain criteria. Some of the criteria need to be met for the whole of the period of investment so the investors get the full benefit of the relief.

Which scheme is right for your business?

Under both schemes, your business will have to provide shares in exchange for cash. As such, they suit businesses looking for investment to help them achieve their medium to long-term growth plans.

SEIS are for small businesses and early stage start-ups looking to raise up to £150,000 of investment in a year. The business must be within its first two years of trading and carry on a qualifying trade.

Businesses looking for an investment between £150,000 and £5,000,000 in a year should consider an EIS. A company has to be unquoted with no arrangements in place to become quoted.

Each scheme has additional qualifying criteria such as your business sector, how many staff you employ and the value of your assets. You will need to satisfy these criteria before you apply for formal approval from HMRC to issue shares under either scheme.

During the lifetime of the scheme, the business will need to meet certain criteria to make sure investors can claim the full amount of tax relief. If the relief is withdrawn, investors may have to pay tax on the income they have received under the scheme.

Most of the available information on these schemes is written with new investors in mind. This makes it challenging for business owners to understand how they operate from their perspective. WMT will lead you through the guidance, avoiding the compliance pitfalls that may disqualify you from your chosen scheme.

What are the benefits to investors?

SEIS offers very generous reliefs to investors including:

• 50% income tax relief on an investment of up to £100,000 per year.
• Capital gains tax exemption on disposals of SEIS shares that have been held for at least three years.
• Reinvestment relief of 50% from capital gains if shares are sold in under three years and invested in other SEIS companies.
• Loss relief if the value of the investment goes down instead of up.
• Inheritance tax relief on the value of the shares once they have been held for two years.

EIS tax benefits for investors include:

• 30% income tax relief on an investment of up to £1 million per year. From 2018/19 up to £2m can be invested into EIS, however, amounts over £1m must be in a knowledge-intensive company
• Capital gains tax exemption on the disposal of EIS shares if held for the qualifying period and income tax relief has been received and retained.
• Losses made on the disposal of shares can be set against income in the year they are sold or the previous year. This could be more beneficial than setting it against any capital gains in a particular year.
• Inheritance tax relief on the value of the shares once they have been held for two years.

As the schemes are designed to attract new investment, employees and shareholders with a significant financial interest in the business are unable to hold shares in it under an SEIS or EIS.

How we can help

WMT works with businesses and investors to make sure the benefit fully from investments under SEIS and EIS.

For businesses we can:

Confirm your eligibility for an SEIS or EIS scheme – we will check your business meets all the criteria and explain how you can maintain them for the length of the investment.

Prepare your scheme application – and answer any queries raised by HMRC to make sure you receive your Advance Assurance of acceptance under your chosen scheme.

Enhance your investment proposition – so you are in the best possible position to secure investment once you have HMRC approval

Prepare SEIS and/or EIS certificates for investors – which confirm how much they have invested in your company and under which scheme.

For investors we can:

Advise you on your tax position – before you make an investment in a business through an SEIS or EIS companies and when you dispose of shares.

Complete your tax returns – to make sure you receive the right amount of tax relief.

Get in touch with our tax team to find out more about how we can help you.