SEIS and EIS Tax Reliefs

Grow faster by making yourself more attractive to potential investors with the SEIS / EIS initiative. As an investor, take advantage of up to 50% tax relief on your investments.

Generous tax relief on investments.

Find out how SEIS and EIS encourage investment in qualifying early-stage companies.

The schemes are designed to help investors counterbalance the risks when buying shares at early-stage and new seed-stage companies and allows entrepreneurs to overcome the fundraising challenges. Get advice on how to secure advance approval from HMRC or raise under SEIS/EIS.

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Key differences between SEIS & EIS

Both schemes are aimed towards companies seeking investment, but there are few distinct differences between SEIS and EIS. A quick overview of key benefits and conditions will help you decide which scheme is best for you.

SEIS

Offers tax relief of 50% on the investment with a lifetime cap of £150,000. The scheme focuses on start-ups trading for less than 2 years with less than 25 employees and a maximum of £200,000 in gross assets at the time of investment.

EIS

Offers tax relief of 30% on the investment with a maximum investment of up to £5m each year and a lifetime cap of £15m. The scheme focuses on more mature companies trading for less than 7 years with less than 250 employees.

Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) offers a much greater tax relief benefit of 50% on the amount invested.

Designed to boost economic growth by promoting new and innovative enterprises in the UK.

It is mainly targeted at small and early-stage startup businesses and offers the best benefits but at a much lower limit.

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Seed-Enterprise-Investment-Scheme-claim

£82115

average investment.

1530

first-time applicants (2019).

£1bn

of total funds raised.

SEIS Tax Relief Benefits

The scheme is designed to help smaller younger companies attract outside investors. The main advantage for an investor is the tax exemption from capital gains on any profits that comes from selling the shares after 3 years.

For Company

Investment in your company without paying bank or investment rates on a loan.
Attracts multiple investors and receives ongoing investment in the company.
Ability to apply for advanced assurance to show investor(s) eligibility for the scheme.

For Investors

Income tax relief of 50% on your investment, a maximum annual investment of £200k.
Disposal relief when selling shares when holding for more than 3 years and inheritance tax relief when holding shares for 2 years.
50% of investment (capped at £50k) personal capital gains tax relief.
Loss relief of up to 45% on business investment not performing well.
Carry-back option to treat shares as if they were acquired in the previous year

Calculating SEIS Tax Relief Example

Here are some examples of scenarios when the investment value increases and decreases over time, to show how an investor can benefit from SEIS.

Growth Tax Relief Example

Let’s use a manufacturing company qualifying for SEIS. They have received an initial investment of £50,000. The business value has stated the same over 3 years, but the investor gains £25,000 income tax relief on the investment which makes the final return worth £75,000.

Loss Tax Relief Example

Due to the nature of a startup, there is always a risk that the business you invested in may perform poorly. In this case, instead of losing £50,000, the SEIS tax relief of 50% applies which leaves at-risk capital of £25,000 and saves £25,000 on the investment. Assuming the rate of income tax at 45%, the total return would be £36,250 (£25,000 + £11,250 x 45%).

Enterprise Investment Scheme (EIS)

Enterprise-Investment-Scheme-claim

The next-level scheme designed for small and medium enterprises that comes with a tax relief rate of 30% on the investment.

The initiative is aimed to raise the funding and use it as fuel to grow the business. Introduced to help more mature trading companies to raise funds by offering attractive tax relief for investors.

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£467093

average fund value (2019).

1470

first-time applicants (2019).

£22bn

of total funds raised.

EIS Tax Relief Benefits

As with the SEIS tax relief, it helps companies put themselves at a much more attractive position. The main advantage of the scheme for the investors is that it provides a great 30% tax relief on the investment.

For Company

Investment in your company without paying bank or investment rates on a loan.
Attracts multiple investors and receives ongoing investment in the company.
Choice how much money you rise up to £5m per year and a maximum of £12m in the company’s lifetime.
Ability to apply for advanced assurance to show investor(s) eligibility for the scheme.

For Investors

Income tax relief of 30% on your investment, a maximum annual investment of £1m.
100% of investment personal capital gains tax relief.
Disposal relief when selling shares when holding for more than 3 years and inheritance tax relief when holding shares for 2 years.
Loss relief of up to 45% on business investment not performing well.
Carry-back option to treat shares as if they were acquired in the previous year.

Knowledge Intensive Companies (KIC)

Companies carrying out R&D can now raise greater investment with a special status of ‘Knowledge Intensive Companies’ under EIS. They can raise up to £10m per year with a lifetime cap of £20m and are trading for less than 10 years with 250 – 500 employees.

To qualify for the KIC benefits, companies must meet certain conditions and have allocated some resources on R&D activities.

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Our vast experience as tax advisers and product developers puts us in a unique position when it comes helping innovative companies.

Get in touch to arrange a free no-obligation call to discuss your options for obtaining ‘Knowledge Intensive Company’ status.

Calculating EIS Tax Relief

To get a better view of how an investor can benefit from EIS let’s use example scenarios of when the investment value increases and decreases over time.

Growth Tax Relief Example

Let’s use an ICT company that qualifies for EIS. They have received an initial investment of £100,000 and over 3 years doubled in value. An investor can claim 30% of the amount invested, which saves £30,000 in income tax. Because the company performed well, the investment returns are worth £200,000 and together with tax relief, this makes the final return worth £230,000.

Loss Tax Relief Example

EIS investments also carry a risk and the returns may vary. This example shows a case when the value of the shares has fallen below the effective costs. Instead of losing £100,000 of the investment, the EIS tax relief of 30% applies which leaves at-risk capital of £70,000 and saves £30,000 on the investment. Assuming the rate of income tax at 45%, the total return would be £61,500 (£30,000 + £70,000 x 45%).

Apply For SEIS / EIS or Claim Tax Relief

Tax relief schemes are a complicated area and always depend on your individual circumstances and may be subject to change. You should consult a professional tax advisor prior to making any investment or application to make or receive the most benefit.

G2 have been assisting small and medium-size companies from various industries on whether they are entitled to either of the schemes. With over 11 years of award-winning tax relief experience, we understand how to get your application approved.

If you are a company looking to apply for the SEIS / EIS

You will benefit from a simplified process that will determine which scheme is appropriate, assessing that you meet the qualifying criteria and risk to capital condition. From the initial point of contact, we will provide you with expert tax and compliance advice to ensure you are getting the best from the scheme.

On average 1 in 5 applications for SEIS and EIS Advance Assurance Request gets rejected by HMRC. At G2 our team of tax relief experts will ensure you satisfy the essential criteria when completing the advance assurance before you commit to an investor(s). In the event of an inquiry from HMRC, we will assist with defending your case.

Eligibility meeting, including future planning
Information gathering, including supporting documents required checklist
Completion of online advance assurance
Completion of online EIS1 compliance statement
Annual review meeting to ensure ongoing compliance

As part of our service, we will undertake an annual check to ensure you are maintaining your eligibility for the scheme.

Administrative support throughout the process, including completing the compliance statement.

If you are an investor looking to claim tax relief

When you have the compliance certificate from the company, you can apply for tax relief. We will support you in what sections you need to complete including making the claim for SEIS / EIS.

Annual compliance check to ensure you are meeting the criteria to claim and do not lose out on the full benefits of the scheme.

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