Getting SEIS & EIS Advance Assurance

SEIS and EIS are tax schemes which provide financial benefits to private investors in early-stage companies. SEIS is tailored to early-stage startups, whereas EIS focuses on scale-ups. However, you can apply for Advance Assurance for both SEIS and EIS in the same application.

What is SEIS & EIS Advance Assurance?

SEIS & EIS Advance Assurance is an approval granted by HMRC, stating that an investment in your company will likely be eligible for tax relief. It is not a 100% guarantee for potential investors, but it will make your firm a much more attractive investment opportunity.

Around two-thirds of UK investors exclusively invest in SEIS/EIS-eligible opportunities. These tax breaks exist to encourage investment in risky new businesses. If you want to accept any investment from individual investors, you should ensure that you get SEIS and EIS advance assurance before fundraising. 

When starting out, it can be strange and slightly depressing to think that angel investors (individuals) invest in startups simply to access tax breaks, but this is often the case. You will meet with individual investors who are enthusiastic about investing in your company, and if you say that your startup isn’t EIS or SEIS eligible, disappointment will show on their faces.

Luckily, most startups are eligible!

Here is a list of excluded trades which aren't eligible.

How long does it take & how much does it cost?

Advance Assurance approval can take 1-2 months to get from HMRC, so start the clock as early as possible.

Historically, this process would cost you £500 - £1,000, but you can now do this for free yourself by applying on the Government Gateway service here. We have created templates to let you generate your business plan and P&L forecast, and we have created a list of documents that you need to upload to Government Gateway further down this post.

Can I get support with my application?

Founders usually know all the required information and can save money on legal fees by filling in the form. We have templates and FAQs below to guide you through the application form. We are also happy to review advance assurance applications to assist our accounting clients. Feel free to schedule a call with me here if this could be helpful.

General context worth understanding

SEIS and EIS are schemes that encourage investment in new and 'risky' businesses in the UK. This is good for innovation but has some more layers to understand. If your business is forecasting profitability in its first couple of years, or vast profits which greatly exceed the losses, it isn't clear that the business is 'risky' and meets the risk to capital conditions of the scheme. Similarly, if you are planning to raise a £1M EIS round, but your business is only budgeted to lose £200,000 in a business plan, then this may raise questions around the risk to capital conditions. Ensuring that your business is eligible and that your plans and fundraising amounts are consistent with the risk to capital conditions is important. Another condition to make sure that your business meets is timelines. For SEIS, funds raised should be spent within 3 years of receiving the investment, whilst for EIS, funds raised should be spent within 2 years ears of the investment. You will need to make sure your business plan & financial forecasts demonstrate this eligibility.

Is there anything I need before I apply for Advance Assurance?

Before applying for EIS, you will need your Unique Taxpayer Reference, which can take about two weeks to arrive in the post after registering your company. You can use this time to prepare your Business Plan and upload the other documents to get Advance Assurance.

You will be asked to upload some documents at the end of the application form. Make sure to include the following:

1. Business Plan
This pitch deck is similar to what you would fundraise with. However, you need to include some specific information to ensure that you demonstrate to HMRC that you meet the relevant criteria under the scheme. Some of these criteria are things like 'risk to capital' (risk of investors losing their money & things going badly), you being based in the UK, etc. We have created a template business plan that contains the slide structure & information that you will need to share. Our clients have used this template to successfully get advance assurance approval.

2. Financial Model
You should include a simple P&L forecast within your Business Plan. Our template has space to add a screenshot of this on slide 13. This P&L should show your growth aspirations and the risk to capital from investing in potentially loss-making businesses. We have put together a financial model here for you to use. The first tab allows you to add your input, and the final tab should provide sufficient details about your application. The middle tab can be used for operationally more detailed business planning. When modelling out staff costs, its useful to apply a 1.17 multiplier to gross salary costs to cover Employers' National Insurance & pension costs.

3. Copies of any Subscription Agreements or Investment Memorandums
(only if already created).

4. The latest set of company accounts
If you don't have any, try adding management accounts or bank statements from inception to show the business's operations.

5. Your company's Articles of Association
These have to be filed with Companies House, so if you don't have records of them, you can find them by searching your company here.

FAQs to help you answer some common questions on the application

Is the company applying as a Knowledge Intensive Company?

Most startups select 'No' here. You can apply for KIC status later, and there are additional checks and delays to confirm whether or not you are knowledge-intensive.

Enter details on how your business meets the risk to capital condition.

This information should primarily be included in your Business Plan, and the SWOT analysis included in our template helps this. The main criteria of the risk to capital condition are:

• The business has a plan to grow & develop in the long term.
• The investments needed to achieve this growth involve risks, such as the investor losing all their money or losing more than they gain.

It is useful to demonstrate how any funds raised will help you grow your team and sales. However, this obviously increases your costs and the risk of investors losing money if they do not succeed. Showing your spending in the business plan across hiring, capex, and R&D, such as software engineering or marketing, can help to illustrate this.

The risk-to-capital condition is another reason why EIS and SEIS are usually reserved for ordinary shares. If someone has an agreement to get their money back or has a preference over other investors, this makes their investment less risky.

Which class of shares will be issued?

SEIS and EIS shares must be ordinary, non-redeemable, and not have any special security or claim on the startup's assets.

What will the expected gross assets be for the company and any subsidiaries immediately before the share issue?

Estimate your current asset position without deducting any liabilities that you may have.