SEIS is a highly popular government-backed investment scheme that encourages investment in early-stage companies.
Companies that can use the scheme.
Your company can use the scheme if it?
- Carries out a new qualifying trade
- Established in the UK
- Is not trading on a recognized stock exchange at the time of the share issue.
- Has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue.
- Does not control another company unless that company is a qualifying subsidiary
- Has not been controlled by another company since the date your company was incorporated.
What is SEIS Advance Assurance?
If a company has received Advance Assurance it means it has received a letter from HMRC confirming the company’s proposed share issue would qualify for SEIS tax relief, based on the information the company provided. If all the requirements are satisfied, HMRC will confirm the company is authorized to issue SEIS certificates.
What are the tax breaks for Tax paying Investors? Useful for High-rate Taxpayers
- Up to 50% income tax relief
- Tax-free growth
- Up to 50% Capital Gains reinvestment relief
- Inheritance tax relief
- Loss relief on exit
Changes to SEIS
Under the current rules, companies must:
- Be trading for less than 2 years.
- Have gross assets valued under £200,000
- Less than 25 employees
- A current single investor can invest upto £100,000
- Companies can raise up to £150,000 under SEIS.
Under the new rules as of April 2023, companies can:
- Trading for up to 3 years.
- Have gross assets valued up to £350,000
The total amount companies can raise is increased to £250,000, and the annual investor limit will also increase from £100,000 to £200,000 to help support these changes.
Investors can claim up to 50% of their investment back through Income Tax relief – with further tax write-offs should the business fail. SEIS is all positive and will help startup companies, which in turn will lead to more jobs being created and ultimately a more successful economy.
What are the key risks?
- Like all investments, the value and income from them can fall as well as rise so you may get back less than you invest.
- However, as they invest in very small companies, this risk is greater with the SEIS than with other investments. Small companies are more volatile and more likely to fail than their larger counterparts. You could lose the entire value of your investment.
- For this reason, SEIS investments are long-term investments and are not for everyone. They are for high-net-worth or sophisticated investors who have no need for immediate liquidity and are able to withstand a potential total loss.
- In addition, as there is no recognized market for these shares, SEIS investments are less liquid than other stock market investments and they will be harder to sell.
- Lastly, to retain all the tax reliefs available, you must hold the investment for a minimum period of three years and the companies must retain their qualifying status. Otherwise, you may have to pay back the income tax relief you have received.