A simple guide to SEIS funding for business owners

Looking into funding options for your small business? If you need to raise money for your company, SEIS could be a scheme worth considering.

One thing to be aware of, however, is that your business needs to be incorporated to qualify, so SEIS isn’t available to sole traders or partnerships.

What are SEIS funds?

SEIS stands for Seed Enterprise Investment Scheme. It’s a venture capital scheme that provides a way for your company to raise funds when it starts trading. Put simply, individual investors who buy new shares in your company get tax reliefs.

SEIS funds can lower investors’ risk from investing in recently formed companies, which are often considered high risk, by spreading the investment across a large group of ventures.

The tax reliefs investors receive include:

  • individual Income Tax relief of 50 per cent on up to £100,000 invested
  • no Capital Gains on the sale of shares held for at least three years
  • loss relief (your at-risk investment multiplied by your tax rate)

How much funding can I receive through SEIS?

You can raise a maximum of £150,000 of your funding through SEIS investments. It’s worth bearing in mind that this figure includes any other small amounts of state aid you’ve received within the three years before the investment date.

It also counts towards your limit for future investments via other venture capital schemes.

Does my company qualify for SEIS?

You can raise funds for your company via SEIS if:

  • it carries out a new qualifying trade (more on this below)
  • it’s established in the UK
  • it isn’t trading on a recognised stock exchange when the shares are issued
  • it doesn’t have arrangements to become a quoted company or a subsidiary of one when the shares are issued
  • it doesn’t control another company unless that company is a qualifying subsidiary
  • since its date of incorporation, your company hasn’t been controlled by another company

Your company and any of its subsidiaries must not:

  • be a member of a partnership
  • have gross assets over £200,000 when the shares are issued
  • have fewer than 25 full-time equivalent employees when the shares are issued

You won’t qualify if you’ve already received investment through the Enterprise Investment Scheme (EIS) or a Venture Capital Trust (VCT).

What are the rules for SEIS investments?

You’ll need to follow certain rules to make sure those investing in your company can claim SEIS tax reliefs on their shares. Not following these rules for at least three years following the investment could result in their tax reliefs being withheld or withdrawn.

The rules around SEIS shares are the same rules that are in place for EIS investments, which you can read more about on gov.uk.

You’ll need to spend any money invested in your company via SEIS within three years, and you can only spend it on certain things, including:

  • a qualifying trade
  • preparing to perform a qualifying trade
  • research and development for a qualifying trade

You can’t spend the investment money on shares, unless they’re shares in a qualifying 90 per cent subsidiary that uses the money for a qualifying business activity.

What’s a qualifying trade?

Your company (or anyone who transferred the trade to your company) mustn’t have carried out the trade for more than two years – and your company can’t have carried out any other trade before you started the new trade.

The trade needs to have the aim of making a profit, but it won’t qualify if it mostly involves an excluded activity. These include things like legal and financial services, property development, running a hotel, and banking, insurance, debt or financing services.

You’ll find the full list of excluded activities on gov.uk.

If you want to make sure your proposed investment meets the criteria for a venture capital scheme before you apply, you can ask HMRC for advanced assurance.

What are the steps to set up SEIS funding?

  1. Complete a compliance statement (SEIS1).
  2. Send the form with all the relevant accompanying documentation to HMRC.
  3. If your application is successful, you’ll receive compliance certificates from HMRC.
  4. Issue the compliance certificates to your investors.
  5. Your investors can then claim tax relief on their investments in your company.

Are there alternative funding options for small businesses in the UK?

There’s a range of possible funding for small businesses, from overdrafts and loans to crowdfunding and grants.

For example, you could apply for:

  • R&D Tax Credits
  • Childcare Business Grants Scheme
  • Princes Trust grants
  • Small Business Research Initiative (SBRI)
  • Heritage Lottery Fund Start-up grants

Has your company received funding through SEIS, another venture capital scheme, or a different type of funding? Let us know how you got on in the comments below.

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