SEIS/EIS - How to Raise Capital the Tax-Efficient Way

Using the Enterprise Investment Scheme to Grow Your Business

 As a new small business owner, one crucial aspect of survival is securing funds for your company. While there are methods such as crowdfunding or relying on family or friends to help out financially, offering relief through the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) is often overlooked. These schemes offer attractive tax relief to investors who are willing to invest in up-and-coming new companies. Both SEIS and EIS are government initiatives, aimed at helping early-stage companies that are generally regarded by investors as high-risk investments. The schemes are very similar; however, they do vary in key factors.

In this article, Spartan Accounting Group will take a look at both of the scheme options so that you can make an informed decision about which option will suit your business better. As experienced small business accountants, we understand that both the SEIS and EIS schemes’ benefits can make investing more appealing to private investors. However, it is also important to know that there is a fair bit of paperwork that is involved in applying for either scheme. Later in this blog, we will take a look at the application process as well.

Whether SEIS or EIS Better is Suited to Your Business

The SEIS scheme primarily deals with very early-stage companies, who need to adhere to certain criteria in order to be able to use the scheme. Some of the requirements include the company being less than 2 years old, having less than £200,000 in assets and the start-up being based in the UK (alternatively having a permanent establishment in the UK). Furthermore, the scheme allows investors to invest up to £100,000 per tax year, and then receive a 50% break in tax. Additionally, the investor will benefit from Capital Gains Tax (CGT) exemption on any profits that should arise from the sale of shares after 3 years. 

The EIS scheme, on the other hand, deals with medium-sized companies in which investors can invest up to  £1 million per tax year and receive a 30% tax break. The investor will also not be liable for CGT on the profit that arises from the sale of the share after 3 years, similarly to the SEIS scheme. The company must have no more than 250 full-time employees at the time of investing and may raise up to  £5 million each year, capped at  £12 million in the company’s lifetime. Additionally, within 2 years of the share issue, the company must employ the money raised by the share issue for the purpose of trade, or research and development.

SEIS/EIS - How to Raise Capital the Tax-Efficient Way

Applying For the EIS or SEIS Schemes

It is important to note that the government has strict rules around what the capital raised by the SEIS and EIS schemes are used for, as touched on briefly above. As per their SEIS and EIS webpage on Gov.uk, money must be used for “qualifying business activity”. Furthermore, the money raised must be spent within 2 years of the investments, or the date you start trading (if later) and must be used to grow or develop your business. Additionally, it may not be used to buy another business or pose a risk of loss to capital for the investor.

Spartan Accounting Group has experience as SME accountants in London in this field and can assist you with the application process. We can help you with the application for Advance Assurance, submitting a compliance statement to HMRC, as well as sending compliance certificates to investors once you receive authorisation from HMRC. Our team of expert small business accountants can help your new business with every aspect of its financial department. We highly recommend getting in touch with Spartan Accounting Group in London for a more detailed plan on how to raise capital for your new business the tax-efficient way!

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