Impact of state aid on SEIS and EIS

📘Overview

Understanding how state aid interacts with the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) funding is essential before you raise investment.

Both schemes are designed to help early-stage companies attract investors through tax-reliefs. However, they fall under different categories of state aid, and these distinctions affect how much you can raise.

This article covers:

What state aid means
The different types of state aid
How state aid affects SEIS and EIS eligibility
Practical examples and key points
Official resources for further reading

💡 What Is State Aid?

State aid refers to any financial advantage granted by a government (or public body) on a selective basis that could distort competition or trade within the European Union (EU).

The term is deliberately broad: an “advantage” can take many forms, including grants, loans, tax breaks, or other financial incentives.

Examples

Covid-19 support schemes such as furlough grants and emergency funding
Innovate UK Smart Grants
Certain regional development grants

Not all government funding counts as state aid, though. If you’re uncertain, ask the grant provider or check the scheme’s terms, they should confirm whether the funding is classified as state aid.

Why State Aid Exists

State aid rules are designed to maintain fair competition between businesses. They ensure that government support helps address market failures rather than giving one company an unfair advantage. The overall goal is to benefit both businesses and consumers.

📊 Types of State Aid

There are two main categories of state aid relevant to UK companies:

1. De Minimis State Aid

These are small amounts of aid considered unlikely to distort competition.

Under the De Minimis Regulation, a business can receive up to €300,000 (approximately £260,000) over a rolling three-year period.

Examples: small local authority grants, certain training or innovation vouchers.

2. Notified State Aid

This type of aid is approved by the European Commission. It includes most significant grant or support schemes that are not classed as De Minimis.

Examples: Innovate UK Smart Grants, larger R&D or infrastructure programmes.

The General Block Exemption Regulation (GBER)

The GBER simplifies how certain types of state aid can be granted without needing separate approval. It covers areas such as:

SME investment aid
Research and development (R&D) and innovation
Environmental protection
Local infrastructure support

✅ SEIS and State Aid

The Seed Enterprise Investment Scheme (SEIS) is itself classed as De Minimis state aid.

Companies can raise up to £250,000 under SEIS (as of 6 April 2023) rather than the older £150,000 limit.

However, this limit includes any other De Minimis aid received during the three years prior to the SEIS investment.

Example

If your company has already received £50,000 of De Minimis aid, you can only raise £200,000 under SEIS in that three-year window (because £250,000 minus £50,000).

If you’ve received £250,000 of De Minimis aid, you cannot raise any further SEIS investment, though you may still qualify for EIS funding instead.

✅ EIS and State Aid

The Enterprise Investment Scheme (EIS) is treated as Notified state aid, permitted under the General Block Exemption Regulation.

You can raise up to:

£5 million per year, and
£12 million in total over the company’s lifetime (Higher limits apply to “knowledge-intensive” companies.) However, any Notified state aid received in the three years prior to an EIS investment reduces your available EIS allowance on a pound-for-pound basis.

Example

If you receive £250,000 in Notified state aid (for instance, Innovate UK funding), your EIS limit in that period decreases to £4.75 million.

💡 Key Practical Points

Check whether any previous funding your company received counts as state aid.
Keep a record of all aid received, amounts, dates, and type (De Minimis or Notified).
When raising SEIS or EIS funds, declare this information to investors and HMRC.
Use official guidance to verify classification and limits.

🔗 Useful Resources

Summary

If your company has received government grants or funding within the three years before SEIS or EIS investment, that funding likely reduces the eligible investment limit on a pound-for-pound basis.

Being aware of how De Minimis and Notified state aid interact with SEIS and EIS ensures you remain compliant while planning your fundraising strategy.