Step 1: Apply for 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 more attractive investment opportunity.

You can start your advance assurance application here with all the documentation ready. Note that you will need your unique taxpayer reference, which can take about two weeks to arrive in the post after registering your company.

What are the benefits of having advance assurance?

When starting out, it is 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. Around two-thirds of UK investors exclusively invest in SEIS/EIS-eligible opportunities.

These tax breaks encourage investment in risky new businesses. If you want to accept investment from individual investors, you should ensure that you get SEIS and EIS advance assurance before fundraising. 

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

Advance assurance approval can take months to get from HMRC, so start the clock as early as possible. 

Historically, this process would have cost £500 - £1,000, but you can now do this for free yourself by using the Government Gateway service here. Please see the document checklist at the bottom of this article for your needs.

To maximise my chance of a successful application, we can review and advise on your application, so if you need an accountant, schedule a call with Novabook here.

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 you register your company. During this time, you can prepare your business plan and upload other documents to get advance assurance.

Which documents do I need to apply?

To apply for SEIS/EIS advance assurance, you will need to prepare several key documents:

• Business Plan
  This is a pitch deck similar to what you would use for fundraising. However, it must include specific information to demonstrate to HMRC that you meet the relevant criteria under the scheme, such as the 'risk to capital' condition and your UK-based operations. We have created a template business plan that contains the slide structure and information you need to share.
• P&L Forecast
  Include a simple profit and loss statement for the coming years within your business plan. This will show your growth aspirations and highlight the risk to capital from potentially loss-making businesses. We have a financial model for you to use that contains the slide structure and information that you will need to share.
• Latest Accounts or Bank Statements
  Provide your Latest Accounts or Bank Statements, if available, to give a clear picture of your current financial status.
• Other documentation
  HMRC will ask for a list of the company's current shareholders as of the date you submit your advance assurance application, a copy of the Memorandum and Articles of Association, and the latest draft of any investor decks or similar documents that you will share with potential investors.

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.

It is worth noting that if your project very high profits in the first year or first few years of your financial model, HMRC may question whether there is truly a risk to the investors' capital and your eligibility for the scheme. Similarly, if the business has very high assets, HMRC could claim that the risk to investors' capital isn't sufficient to qualify. HMRC can also adjudicate that only a partial amount of capital or limit on the relief would qualify, so your financial model and the risks portrayed should be considered carefully. Generally software-based or capital-intensive businesses are more likely to be eligible for the risk to capital condition than creative industries, such as film/music production.

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. US SAFEs often can additional provisions that change the status of the shares, so often don't qualify, but typical UK ASAs do. You must ensure that any shares issued are ordinary and a lawyer advising on your round is the best port of call here.

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. The sequencing of any fundraise is very important. For example, if a VC fund transfers you funds in advance of you issuing your SEIS shares, then you could well breach the gross assets limit. Also SEIS shares should be issued on a separate day to EIS shares and other non-qualifying shares. Even with this, if an EIS investor transferred funds before SEIS shares are issued this could create eligibility problems for SEIS.

What are the rules around limited companies?

It is possible that if a limited company has ever controlled your company, then the company will not be SEIS eligible. This sounds simple, but if you own a limited company that controls 0.1% of your company, and you personally own 50% of the company, then your company (via its connected party) controls 50.1% of the company so likely isn't eligible for SEIS funding.

Shares issued vs share transfers?

You should ensure that you are issuing new shares to (S)EIS investors and that they aren't being transferred form existing shareholders.

Do shares need to be fully paid up?

Shares need to be fully paid up for by investors. They may be able to receive a discounted price, but shares need to be paid for and not given for free.

Should you issue SEIS, EIS and non-EIS shares on the same day?

You should issue SEIS shares separately to EIS shares and issue EIS shares separately to VC invested funds.

Can ASAs be SEIS/EIS eligible?

They usually can be as long as they convert to ordinary shares. HMRC will usually only give Advance Assurance if they have a fixed conversion date within 6 months of the instrument being used. However, they can still receive the tax treatment if they convert after a longer period of time but won't be given advance assurance.