Will the investor qualify for the scheme?

📘 Overview

To qualify for SEIS or EIS Income Tax relief, an investor must not be “connected” with the company.

HMRC defines “connection” in two main ways, by financial interest or by employment. If either applies, the investor will not be eligible for SEIS or EIS relief.

🔍 1. Connection by Financial Interest

An individual is considered connected to the company if they:

• Control or own more than 30% of the issued share capital or voting rights.

These rules also apply to:

• Shares held indirectly, such as through business partners or certain relatives.
• Relatives included: spouse, civil partner, parents, grandparents, children, and grandchildren.
• Relatives excluded: brothers and sisters are not counted for this purpose.

💡 The connection rules apply for:

• Two years before the investment is made, and
• Three years after the investment.

During this five-year window, any change in ownership or control can affect eligibility.

🔍 2. Connection by Employment

An individual is also connected if they are employed by the company at any time during:

• The two years before, or
• The three years after the investment.

However, there are two important exceptions:

• Directors are not considered employees for SEIS purposes.
• Under EIS, directors may qualify in some cases, especially if they become a director after the investment.

💡 If in doubt, seek professional advice before appointing an investor as a director or issuing new shares.

✅ Summary

💡 Tip

Keep clear records of shareholdings, directorships, and employment history for all investors. HMRC may request evidence to confirm that no connection existed during the qualifying period.