Understanding SEIS

📘 Overview

The Seed Enterprise Investment Scheme (SEIS) helps early-stage start-ups attract investors by offering generous tax reliefs, including 50% Income Tax relief for qualifying investors.

For tech founders navigating the challenges of raising equity, SEIS can be transformative. This guide explains the key rules, requirements, and best practices when planning to use SEIS.

💡 Creating a Strong Business Plan

A well-prepared business plan is essential for SEIS approval. HMRC looks for a credible, high-growth, high-risk venture.

Show Risk and Growth Potential

• Clearly outline the risks and challenges your business faces to demonstrate genuine investor risk.
• Avoid suggesting non-risky investments such as purchasing buildings or stock that could be easily resold.
• Highlight your management team’s long-term growth strategy, not a short-term exit plan.

Prove Active or Imminent Trading

• Show that your company is trading or actively preparing to trade.
• Pre-trade activity should go beyond fundraising or feasibility work.
• Include 3–5 year financial forecasts and a draft balance sheet, even if you don’t yet have statutory accounts.

Explain the Use of SEIS Funds

• Specify how the SEIS funding will be used to drive growth, such as hiring, product development, or expanding into new markets.
• Avoid references to using funds for operational costs, debt repayment, or dividends.

🔍 Meeting SEIS Requirements

Certain conditions must be met when issuing SEIS shares and maintained for three years after the investment.

Ongoing Compliance

• Ensure all SEIS conditions remain satisfied for three years following the share issue.
• Seek advice before making structural or ownership changes that might breach SEIS rules.
• Relief will not usually be clawed back if the business fails naturally.

Restricted Activities

• Activities such as farming, property leasing, and hotels are excluded unless they are a minor part of your trade.
• Royalty income is acceptable only if it relates to intellectual property created by the company.

Timing Rules

• SEIS applies to companies within three years of starting to trade.
• If you’ve transferred an existing trade into a new company, the original trade must also be no more than three years old.

✅ Issuing SEIS Shares

To qualify for SEIS relief, share issues must be carefully structured and documented.

Prioritise SEIS

• If raising funds under both SEIS and EIS, issue SEIS shares first, as the relief is more generous.
• Ensure SEIS shares are issued at least one day before any EIS shares.

Manage Timelines

• You can only submit form SEIS1 once the company has traded for four months or spent 70% of SEIS funds.
• Set clear expectations with investors about when they’ll receive their SEIS certificates.

Cash Payments for Shares

• Shares must be fully paid in cash when issued.
• Avoid issuing shares before receiving payment, as this will invalidate SEIS eligibility.
• Use an Advance Subscription Agreement (ASA) if funds are received ahead of the share issue.

Batching Share Issues

• For administrative simplicity, issue all SEIS shares for a funding round on the same day.
• This avoids the need to file multiple SEIS1 forms.

💡 Investor Eligibility

There are specific rules about who can invest under SEIS.

Directors

• Unlike EIS, directors can invest under SEIS in certain cases.
• However, employees cannot.

Existing Shareholders

• Existing shareholders can invest provided they:
  • Do not own more than 30% of the company’s shares or voting rights, and
  • Maintain this limit for three years after the investment.

Family Members

• Close relatives such as parents or children are excluded.
• Siblings and cohabiting partners are eligible to invest.

🔍 Key Takeaways

✅ Conclusion

SEIS offers start-ups a powerful way to attract investors and fuel early-stage growth. While the rules share similarities with EIS, SEIS has its own specific requirements and timelines that must be followed carefully.

By preparing a solid business plan, documenting trading activity, and meeting procedural requirements, you can make full use of SEIS to support your company’s growth.

For tailored advice, speak to a qualified tax advisor to ensure your business remains compliant and maximises the benefits of this valuable scheme.