An intro to SEIS & EIS funding

SEIS and EIS are tax schemes designed to provide financial benefits to private investors in early-stage companies.

• SEIS: Tailored for early-stage startups, offering significant tax reliefs to encourage investment in new ventures.
• EIS: Geared towards scale-ups, focusing on companies that are looking to grow further.

You can apply for advance assurance for both SEIS and EIS in the same application. Advance assurance is an initial check from HMRC that confirms your company qualifies for these schemes, giving potential investors confidence in their tax relief eligibility. We'll explain the process of applying for Advance Assurance in detail later.

Is my startup eligible for SEIS/EIS schemes?

Before you apply, you need to check:

• that your company can use the scheme
• what you can do with the money raised
• if your business is a new qualifying trade
• and, if you meet the risk to capital condition

Let’s unpick these criteria one by one.

Can my startup use the SEIS/EIS schemes?

Your startup needs to meet the following criteria to be eligible for the SEIS & EIS scheme:

• New Business Activity:
  Your startup must be engaged in a new business activity that hasn't been carried out by the company or its team for more than three years. Your startup should also be a commercial business to make profits.
• UK-Based:
  The startup must be established and operating in the UK. The exact explanation of the permanent establishment conditions can be found here.
• Stock Exchange:
  Your startup must not trade on a recognised stock exchange when issuing shares. There should also be no plans to become a public company or a subsidiary of one when issuing shares.
• Company Control:
  Your company may not control another company unless it's a qualifying subsidiary, and the company must not have been controlled by another company since incorporation.
• Gross Assets:
  Your startup and its subsidiaries must not have gross assets over £350,000 when the shares are issued.
• Partnership Status:
  The startup must not be a member of a partnership.
• Employee Count:
  The startup must have fewer than 25 full-time equivalent employees when the shares are issued.

What can I use the investment for?

The funds raised from the new share issue must be used within 3 years of the share issue. You can spend the money on the new business activity, prepare for the new business activity, or conduct R&D work that leads to the new business activity, like a project aiming to advance science or technology.

What is the risk to capital condition?

As a startup founder, it's important to understand the risk-to-capital condition when seeking investment under SEIS/EIS. This condition ensures that investments are genuinely aimed at growing and developing your business rather than providing guaranteed returns to investors. To qualify, your company must clearly intend to expand and sustain growth while presenting a real risk that investors might lose their capital. This encourages genuine business development and aligns your company's interests with those of your investors.

To meet the risk to capital condition, your investment must follow these guidelines:

• Growth and Development: Your company must intend to grow and develop its trade in the long term. This includes increasing revenue, expanding the customer base, and adding employees.
• Risk to Investors: The investment should be a genuine risk to the investor's capital, meaning there's a chance the investor could lose more than they gain.
• Permanent Growth: The company's growth and development should not depend on continued support from the investor. They should be sustainable independently.
• Investment Risk: The investment should carry a real risk of losing capital, with no guaranteed high returns.

You won’t meet the risk to capital condition if:

• Investor Priority: Some arrangements give one investor priority over others.
• Early Withdrawal: Investors can withdraw their money quickly.
• Money Protection: The investment protects an investor’s money so that other investors' money is used first.