Boost your startup's investor appeal via the SEIS or EIS
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Too many acronyms?
Fair enough. Here’s what they mean:
- SEIS = Seed Enterprise Investment Scheme
- EIS = Enterprise Investment Scheme
Both are UK government tax-relief schemes that can help early stage companies succeed.
Why? Because they offer significant tax incentives to investors who back eligible companies. We’re yet to find an investor who doesn’t appreciate a tax break, so read on to find out how they work.
SEIS in a nutshell
As the name suggests, the Seed Enterprise Investment Scheme (SEIS) is especially for early-stage startups.
Eligibility criteria include:
- Your startup must be a company, with fewer than 25 employees
- Your company must be less than 3 years old
- It must have less than £350,000 in gross assets
- It must not have raised funds through another state aid scheme
There are other requirements so it’s best to check your eligibility with an adviser (like us!). You might expect us to say that but when dealing with the promise of potential tax breaks to investors, you’d probably agree it’s worth it 🙂 .
So what are the actual tax breaks for investors?
- A 50% income tax reduction on investments up to £200,000
- A capital gains tax exemption on any profits made from selling shares in the company
EIS in an… oyster shell?
The Enterprise Investment Scheme (EIS) is similar to the SEIS but for more established companies. Hence the oyster shell reference (when eaten, oysters are much older than peanuts!).
Eligibility criteria for the EIS include:
- Your business must be a company, with fewer than 250 employees
- Your company must be less than 7 years old
- It must have less than £15 million in gross assets
- It must not have raised more than £12 million in total through EIS or other state aid schemes
There are other requirements too and, just like with the SEIS, we’re here to help.
The tax breaks for investors who back EIS-eligible companies are:
- Up to a 30% income tax reduction on investments up to £1 million (or up to £2 million if some of that investment is in a Knowledge Intensive Company)
- A capital gains tax exemption on any profits made from selling shares in the company
Where to next?
They might be another set of acronyms to get your head around, but the SEIS and EIS are worth it because they could help your startup attract investment.
But how do potential investors know if your startup qualifies for one of these schemes?
You can apply for ‘advance assurance’ from HM Revenue & Customs (HMRC). If granted, you can use this to show potential investors that you qualify for SEIS or EIS. We support startups by preparing advance assurance applications – reach out to chat if you like.
Advance assurance can provide investors with confidence by virtue of the fact that your company qualifies for a government scheme, and because they feel assured of the tax relief on their investment.
Be aware that investors also need to meet SEIS or EIS conditions in order to access the schemes’ tax breaks. This is something they (or their accountants) should be savvy about.
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As with all our articles, please don’t take this as personal tax, financial or other advice (you need to speak to us for that).
Image credits: Rodnae Productions (top), Skyler Ewing (squirrel photo), Cottonbro Studio (oyster photo).
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