If you’re a startup or an early-stage growth business and you’re gearing up for a funding round, chances are you’ve already heard about SEIS and EIS. Most likely in hushed, urgent tones, or accompanied by phrases like “HMRC rejected it” or “the investor won’t proceed without it”. That’s because applying for SEIS or EIS can make or break an early-stage funding round. Get it right, and your investors get generous tax reliefs. Get it wrong, and things can unravel very quickly.
Here’s a guide for applying for SEIS or EIS the right way.
What are SEIS and EIS, in plain English?
There are several enterprise incentive schemes in the UK: SEIS and EIS (that’s the Seed Enterprise Investment Scheme and Enterprise Investment Scheme for the uninitiated). And these schemes exist to encourage individuals to invest in growing UK companies.
The idea is to make early-stage investment less risky for investors by giving them some juicy tax breaks (i.e., income tax relief, capital gains tax relief, and downside protection if things don’t go to plan).
If you don’t know which to apply for, here’s a quick breakdown:
- SEIS is designed for really early-stage startups, so if you’re raising under £250k and under 2 years old, SEIS is probably for you.
- EIS is for slightly more established companies that need more capital. EIS lets you raise more: up to £12 million over time.
From a founder’s point of view, applying for SEIS or EIS makes your business far more attractive to investors (assuming you qualify) and therefore makes it easier to find investment.
For the investor, they get a tax break worth 50% (for SEIS) or 30% (EIS) of their equity investment in the qualifying company. There is also potentially capital gains tax relief on disposing of the investments.
So make sure to check if your company meets all of HMRC’s rules. If it does, both your company and your investors will benefit from tax perks.
| Need help applying for SEIS or EIS? Get in touch with us at [email protected] and we’ll sort it for you. |
Don’t leave it too late! (Applying for SEIS or EIS starts earlier than you think)
One of the most common mistakes we see is founders leaving SEIS and EIS until after money has already come in (i.e. after the investment round). By then, you may already have done something that disqualifies the investment.
Before you issue shares, sign investor agreements, or accept funds, you should be thinking about applying for SEIS or EIS. That usually means applying for Advance Assurance from HMRC first. Investors will ask for it, and HMRC can be less forgiving after the fact.
What you’ll need for Advance Assurance
Applying for SEIS or EIS is no longer a box-ticking exercise; HMRC is asking for more detail these days! This means you’ll typically need:
- A clear and detailed business plan and pitch deck
- Details of your company structure and shareholders
- Proposed investor details (even if indicative)
- Financial forecasts showing growth and commercial risk
- Explanation of how you meet the SEIS and/or EIS criteria
- Information about how funds will be used
HMRC wants to see that investors are genuinely taking a risk and that the business is designed to grow, not preserve capital.
This means they’ll want to see that your business has growth potential and meets the “risk to capital” condition. If your business is “safe” or has already started paying dividends, it might not pass.
Common mistakes to avoid when applying for SEIS or EIS
We regularly see otherwise good businesses trip up by:
- Issuing shares before getting Advance Assurance (HMRC can say no)
- Using non-compliant terms in shareholder agreements
- Assuming both SEIS and EIS can be claimed on the same money
- Forgetting that SEIS must come before EIS (chronologically and structurally)
- Missing the three-year window to issue the investor’s certificate (yes, it’s a thing)
- Assuming approval is automatic because “it worked last time” (Unfortunately, HMRC doesn’t care what worked last time).
Need help making sense of SEIS and EIS?
Applying for SEIS or EIS sits at the crossroads of tax, company law, and fundraising strategy. Therefore, getting advice early can save months of delay or worse, a lost funding round.
At JVCA, we help founders plan, structure and submit SEIS and EIS applications properly from start to finish. So if you want your funding round to run smoothly every time, get in touch!
Drop us an email at [email protected].
