Impact of state aid on SEIS and EIS
What is State Aid?
State aid is any advantage granted by government on a selective basis to any organisation that could potentially distort competition and trade in the EU. The definition of state aid is very broad because ‘an advantage’ can take many forms, including things like grants, loans and tax breaks.
Many of the government support mechanisms available due to Covid-19 are state aid, as are Smart grants distributed by Innovate UK. However, not all government grants are necessarily State aids and if you are ever unsure the scheme/grant provider will be able to clarify.
State aid rules are in place to ensure a level playing field amongst businesses in the EU, to address market failures and to ultimately provide a benefit to both businesses and consumers.
Types of State Aid
There are two types of state aid worth noting:
- De Minimis state aid are small amounts of aid seen as being unlikely to distort competition. The De Minimis Regulation allows businesses to obtain small amounts of aid – less than €200,000 (c. £150,000) over 3 rolling years.
- Notified state aid is aid that has been notified to, and approved by, the European Commission. This essentially covers all state aid that is not de minimis state aid.
It is also worth being aware of the General Block Exemption Regulation (GBER) which provides a simple way of providing state aid for a range of measures considered not to unduly distort competition. This includes things like SME investment aid, aid for R&D and innovation, aid for environmental protection and aid for local infrastructure.
What are the SEIS implications of receiving state aid?
SEIS is considered to be De Minimis state aid. Companies are able to raise up to £150,000 of SEIS investment; however within this limit it must also consider any other De Minimis state aid funding received in the three year period prior to the investment.
For example, if a company receives De Minimis state aid of £50,000 then it is only able to then raise £100,000 of SEIS investment within the three year window. If a company received £150,000 of De Minimis state aid then it wouldn't be able to raise any SEIS investment; but would be able to raise EIS investment (see below).
What are the EIS implications of receiving state aid?
EIS is considered to be Notified state aid and is currently permitted under the General Block Exemption Regulation. Companies are able to raise up to £5m per year with a maximum of £12m over the company's lifetime (there are higher limits for knowledge intensive companies). Similarly to SEIS, any notified state aid received in the three years prior to the date of investment decreases the amount of EIS available to the company.
For example, a company that receives £250,000 of Notified state aid, such as Innovate UK funding, will have its EIS limit reduced to 4.75m in the relevant three year window.
tl;dr if you have received government grants or funding within three years of SEIS or EIS investment then they will likely reduce the amount of eligible investment that you can raise on a £ for £ basis.