EIS and SEIS

While EIS and SEIS schemes both encourage private investment in early-stage companies, there are differences between them.

• EIS is for medium-sized startups. It allows an individual to invest up to £1 million each tax year and in return receive a 30% tax beak
• SEIS is for smaller companies that are starting out, and enables individual investors to put in up to £100,000 per tax year, and get a 50% tax break in return.

Whereas EIS dates back to 1994, SEIS was set up more recently, in 2012.

• If you’re an investor in an eligible company, you get 30% income tax relief. So for every £10,000 you invest in a single tax year, you’ll get back £30,000.
• You pay no capital gains tax on any profits you make from your investment
• If you make a loss on your investment, you can offset this against your income tax. If you dispose of shares in the company you’ve invested in, you can reduce your taxable income for the year in which this happens.
• Generally, you must hold onto shares for at least three years for them to be eligible for EIS relief.
• You can invest a maximum of £1 million a year.

• If you invest in an eligible company, you get 50% income tax relief. For every £10,000 you invest, you get £5,000 back.
• There’s no capital gains tax to pay on your profits.
• You can claim loss relief and offset this against income tax.
• You can also get extra relief, known as capital gains reinvestment relief, allowing you to claim up to 50% of tax paid on other investments, if you reinvest this money in an SEIS company.
• You can invest a maximum of £100,000 a year.

Most types of business will qualify for EIS or SEIS.

To qualify, you must have a permanent establishment in the UK.

You must plan to spend your venture capital investment on qualifying trade.

Your company must be unlisted on the stock exchange, and must not be controlled by, or control, another company.

You may NOT qualify for EIS or SEIS if more than 20% of your trade includes:

• Property development
• Legal or financial services
• Leasing services
• Banking, insurance, debt or financing
• Generating or exporting electricity
• Gas or fuel production
• Running a hotel or nursing home.

For full details of qualifying types of trade, please check government guidance.

You’re only excluded if a substantial part of your trading activity covers any of these areas.

To qualify for EIS tax relief, your company must have:

• Traded for under seven years
• Fewer than 250 employees
• No more than £15 million in gross assets.

To qualify for SEIS tax relief, your company must have

• Traded for under two years
• Fewer than 25 employees
• No more than £200,000 in gross assets.

In EIS funding, you can raise up to £12 million. For SEIS funding, this figure is a maximum of £150,000.

You may not qualify for the full amount in either case if your company has received any de minimis state aid in the last three years. If this is the case, the cost will go towards your EIS or SEIS limit.

For the investment money you receive under EIS or SEIS to qualify for tax relief under either scheme, you must spend it on:

• Qualifying business activity
• Preparing to carry out this activity (which must commence within two years of the investment)
• Research and development (R&D) that you expect to lead to qualifying business activity.

The money you raise from the investment must be spent within 3 years of the share issue.

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.

If your company wants to raise finance using both SEIS and EIS, you must raise investment with SEIS first, before moving onto EIS.

You can, however, apply for both at the same time. If, once you pass the £150,000 limit under SEIS, then you can go on to raise additional funds of up to £5 million under EIS.

There are rules about how you do this. You must always raise funds in the right order, and you cannot issue shares under both schemes on the same day.

Under EIS, any individual can invest up to £1 million in a single tax year. For SEIS the maximum individual investment is £100,000.

Shares you issue under either scheme must be ordinary shares with no preferential rights attached.