Can my SEIS or EIS investor loan money to my company?

📘Overview

The key principle is that EIS shares and any loans must be completely independent, meaning neither should influence or depend on the other. The moment HMRC perceives a link or circular flow of funds, EIS relief could be denied.

Notably, the EIS (and its companion scheme, the Venture Capital Trust (VCT) scheme) now carry a sunset clause extended to 6 April 2035 (previously 6 April 2025).

✅ Compliance Checklist

To ensure your structure remains compliant, consider the following essential points:

• Keep the EIS investment and the loan entirely separate. Draft a loan agreement that clearly states there is no connection or dependency between the loan and the share investment. Each party should understand and sign off on this separation.
• Ensure commercial terms. The loan must be offered on normal commercial terms, similar to what a bank or third-party lender would provide. Avoid any preferential repayment terms or rates that could imply disguised equity.
• Do not allow conversion to equity. The loan cannot later convert into EIS shares. A conversion right would automatically disqualify the investment from EIS relief.
• EIS funds cannot repay the loan. The money raised under the EIS scheme must not be used to repay any outstanding loan balance, HMRC treats this as a prohibited “recycling” of funds.
• Disclose both arrangements to HMRC. When applying for EIS advance assurance, include details of the loan in your submission. Transparency is key to avoiding later challenges.
• Maintain separate bank accounts. Deposit EIS funds and loan funds into separate company bank accounts. This not only demonstrates good record-keeping but also makes it easier to show HMRC how each source of funds has been spent if questioned later.

💡 Practical Tip

Keeping a clear audit trail, separate agreements, timelines, and bank accounts, will help you validate the independence of both funding streams. If in doubt, seek legal drafting support before the EIS application is submitted.

Summary