SEIS (Seed Enterprise Funding Scheme) was launched by Chancellor George Osborne in 2012 as a method for small, early-stage firms to boost cash by way of particular person traders.
SEIS helps you elevate the cash it’s essential to develop when your startup is in its early phases by providing vital tax breaks to firm traders, making a possible funding in your corporation extra enticing.
In 2023 to 2024, 2,290 firms raised a collective £242m below SEIS, a large 51% improve on 2022 to 2023, largely because of the enlargement of the scheme’s limits in 2023.
Learn on for the complete information or go straight to the part that you simply’re most all in favour of.
What’s SEIS tax aid?
What sort of firms can use SEIS?
What’s a qualifying commerce?
How can my investor make a revenue?
What’s the distinction between SEIS and EIS?
Are you able to declare each SEIS and EIS?
What can I spend SEIS funding on?
Making use of for SEIS Advance Assurance
Case examine: how Seafields raised £150,000 by way of SEIS
What’s SEIS tax aid?
Startups can elevate £250,000 by way of SEIS, and particular person traders can declare 50% revenue tax aid as much as a most of £200,000 per 12 months on qualifying investments. This makes SEIS one of many world’s most beneficiant tax reliefs.
The investor additionally advantages from a capital features tax exemption on any income that come up from the sale of shares held for at least three years.
SEIS tax reliefs in full
50% revenue tax aid
Any income from the sale of SEIS shares after three years is exempt from capital features tax
There may be 100% inheritance tax aid on SEIS shares held for no less than two years
If SEIS shares are bought at a loss, traders can offset that loss towards their capital features tax
The best way to declare SEIS tax aid as an investor
You will want to observe these steps:
Confirm eligibility: Be sure that you meet the eligibility standards (see under) as an investor. For instance, you should be a UK taxpayer, put money into a qualifying SEIS firm, and never be linked to the corporate in a big method. Which means as an worker or affiliate who’s an worker. An affiliate could possibly be a enterprise associate or shut relative (although siblings are excluded). Administrators are usually not classed as staff.
Get hold of SEIS3 certificates: The corporate during which you make investments should offer you an SEIS3 certificates confirming that the funding qualifies for SEIS tax aid.
Full Self-Evaluation tax return: When submitting you have to to incorporate the small print of the SEIS funding and the quantity you need to declare for revenue tax aid.
Declare tax aid: Calculate the quantity of tax aid you’re eligible for and enter it into the right part of your tax return.
Professional tip: An SEIS investor who has greater than 30% of your organization or has voting management can’t put money into an organization by way of SEIS.
What sort of firms can use SEIS?
Has as much as 25 staff
Lower than £350,000 in worth
Integrated in UK
By no means obtained funding from a enterprise capital belief or EIS (see under)
Not listed on a inventory change or have plans to checklist on the time SEIS shares are issued
No management over one other firm that isn’t a qualifying subsidiary
Not be (or have been) below the management of one other firm
With a purpose to qualify for SEIS, your organization should perform a qualifying commerce. Most firms do, however there are some exceptions.
What’s a qualifying commerce?
If over 20% of your commerce entails these areas, you don’t qualify:
Coal/metal manufacturing
Farming/market gardening
Leasing actions
Authorized/monetary companies
Property improvement
Working a resort
Working a nursing house
Technology of vitality, resembling electrical energy and warmth
Manufacturing of fuel or different gasoline
Exporting electrical energy
Banking, insurance coverage, debt or financing companies
How can my investor make a revenue?
Buyers should maintain shares for at least three years in the event that they need to use the 50% write-off. In the event that they promote earlier than that, the 50% tax break might be withdrawn.
Buyers then exit in a lot the identical method as every other investor, resembling promoting their shares to a different investor or exiting as a part of a follow-on fundraise. The corporate can even purchase again the shares from an investor, simply not by way of EIS.
What’s the distinction between SEIS and EIS?
SEIS is focused at elevating funding in early-stage firms, whereas the Enterprise Funding Scheme (EIS) helps extra established companies elevate funding.
You may elevate as much as £12m by way of EIS, rising to £20m in case you are a “knowledge-intensive firm” (KIC).
EIS traders can declare a 30% tax break in the event that they make investments as much as £1m annually (rising to £2m if it’s a KIC), in comparison with 50% for SEIS.
The qualification standards are additionally completely different, with EIS permitting funding for firms with as much as 250 staff and as much as £15m in property.
To qualify for EIS, you could have been:
Buying and selling for lower than seven years
Fewer than 250 staff
Have lower than £15m in gross property
Are you able to declare each SEIS and EIS?
Sure, however solely when you’ve exhausted your £250,000 SEIS allowance. If you wish to elevate greater than the SEIS restrict of £250,000, you possibly can all the time begin taking over EIS funding when you’ve hit the SEIS funding restrict.
What can I spend SEIS funding on?
You may solely spend the funds you elevate by way of SEIS on both:
Bills which are going to assist develop your organization, resembling hiring new staff or advertising your corporation.
Analysis and improvement that’s going that will help you develop your organization, resembling growing a brand new product or researching methods to enhance an current one.
Additionally, you could spend the cash you elevate by way of SEIS inside three years.
Making use of for SEIS Advance Assurance
Founders can apply to HMRC for “Advance Assurance” in order that potential traders might be reassured they’ll qualify for tax aid.
There are a number of issues you are able to do to assist get that Advance Assurance:
Be accustomed to SEIS pointers, together with eligibility standards
Have a strong marketing strategy, which can assist HMRC resolve if your organization is eligible
Buyers on board in precept earlier than making use of – having just a few names and the way a lot they need to put in is useful
Be clear in regards to the risk-to-capital situation – element what the cash you’re going to boost goes to be invested in, which has to pose a danger to traders’ capital. For instance, placing the cash on deposit in a financial institution wouldn’t be dangerous however spending the cash on a brand new gross sales staff or advertising marketing campaign could be
If potential, embrace monetary statements for the previous three years
Being constant all through the applying is vital. Be sure that the marketing strategy aligns with what you’re spending the cash on and it’s going to assist progress.
HMRC is taking between 4 and 6 weeks to make Advance Assurance selections.
Case examine: how Seafields raised £150,000 by way of SEIS
Seafields is a hyper-scaled aquafarm operation rising sargassum, a kind of seaweed, in big volumes capturing huge quantities of carbon – another method for the planet to succeed in internet zero.
About two years in the past, local weather scientist Victor Smetacek approached co-founder and CEO John Auckland with the concept of rising huge seaweed farms which could possibly be used to seize carbon and sunk to the ocean flooring.
The startup bales the seaweed and sinks it to the underside of the ocean, the place it’ll sit with all that locked-in carbon for 1000’s of years.
‘With out SEIS, the hazard is that some actually good enterprise concepts don’t get lift-off’
Seafields co-founder and CEO John Auckland
The fantastic thing about this carbon-capture scheme is that it’s a virtuous circle: the seaweed feeds itself from the seabed, which implies it’s not stripping the Earth of assets.
John Auckland, co-founder and CEO of Seafields, explains: “There are usually not many areas on land the place we’re not already rising crops for human consumption. Algae is fast-growing and the ocean is huge, so that you’re not competing with different meals sources.”
The corporate will primarily generate income by way of the usage of carbon credit. Nonetheless, Seafields may even promote of vitamins from the seaweed on the market as a part of livestock feed or be transformed into naptha, the gasoline which is utilized in disposable lighters and in plastics.
Seafields raised £150,000 by way of SEIS for analysis and improvement within the UK, Germany and the Caribbean. The corporate is now elevating an additional £500,000 to £1.5m utilizing EIS as a part of a elevate on the Crowdcube crowdfunding platform.
Auckland himself comes from a crowdfunding background, having based crowdfunding company TribeFirst in 2016, serving to startups elevate principally SEIS and EIS at pre-seed and seed stage. He sees crowdfunding as a type of advertising and a really public method for startups to launch themselves.
We sat down with Auckland to debate Seafields’ expertise of utilizing SEIS and what recommendation he would have for different founders.
What was your expertise of utilizing SEIS?
We used SEIS to get a lot bigger funding sooner from our sole investor. Since you are restricted to elevating £250,000 by way of SEIS, as a founder you possibly can create that every one essential “worry of lacking out” as a result of if as soon as it’s gone, it’s gone.
What would your recommendation be to different founders wanting to make use of SEIS?
As a founder, it’s actually essential that you simply perceive the foundations. I’ve seen some firms get the order mistaken and have needed to flip down SEIS funding as a result of they accepted EIS funding first. That’s a no-no.
What’s the course of for making use of for SEIS?
The method is fairly straightforward. You fill out an digital type. Nonetheless, I’d suggest utilizing an advisor as a result of as soon as HMRC rejects you, they gained’t assessment you once more.
There are three kinds of SEIS of approval/rejection: there’s an permitted first time, a we-need-more-information-before-we-can-approve-you, after which there’s an outright no. Most find yourself within the first two brackets. However in the event you get the applying mistaken – for instance, you possibly can’t use SEIS software for inventory purchases, as a result of they’re not dangerous sufficient – as I stated, you can’t reapply. I’d suggest utilizing a platform resembling Seedlegals as a result of they assessment your software. It’s less expensive than paying an accountant, which may price as much as £3,000.
What ought to I concentrate on in placing collectively my software?
HMRC has began asking so that you can have your first investor lined up earlier than you acquire pre-approval, and that investor needs to be investing 20% of the quantity to be raised.
A letter from a crowdfunding platform can also be adequate, so in the event you’re going by way of the crowdfunding course of, they may give you that letter which can allow you to get pre-approval.
With out named traders or a letter of acceptance from a crowdfunding platform, you possibly can’t even start the SEIS course of for SEIS.
What supporting supplies must you embrace?
It’s good to incorporate a pitch deck as a part of your SEIS software, however there’s a slight distinction between the deck you place in entrance of an investor and the one you ship an assessor as a result of the investor desires to see the thrill – and the potential exit – whereas the assessor desires to see danger. Bizarrely, the assessor desires to see how the investor will lose all their cash!
How lengthy does the SEIS approval course of take?
It used to take three to 4 months however in my more moderen expertise you get a response inside one month. What slows the 28-day turnaround down is getting the applying mistaken o in the event you don’t have the paperwork in place, so that you get pushed again down the underside of the pile. However in the event you make it straightforward to say sure, HMRC says sure actually shortly.
How useful has SEIS been for Seafields?
Rising the SEIS fundraise ceiling from £150,000 to £250,000 has been a giant enchancment.
The £150,000 limitation was fairly a prohibition when all the pieces has turn into a lot costlier during the last couple of years. Getting an internet site, getting your branding carried out, all these issues are all of the sudden 20-40% costlier than they had been just a few years in the past.
What SEIS is sensible for is that it lets an investor take a real punt on an thought or on a founder earlier than any traction has taken place. Lots of companies want more money than they’ll elevate by way of bootstrapping or elevate cash by way of household and buddies. I imply, we’re constructing seaweed farms within the ocean, a brand new sort of aquafarming infrastructure which has by no means been carried out earlier than. With out SEIS, the hazard is that some actually good enterprise concepts don’t get lift-off as a result of they don’t have sufficient of a money runway.
Additional studying
Prime 20 EIS funds and traders you must learn about – Which EIS investor is best for you? Progress Enterprise information to among the most lively EIS funds available in the market.
What’s enterprise debt? – What’s enterprise debt? How do you get it and who’re the suppliers within the UK?
What are potential sources of funding for your corporation? – To assist navigate by way of the quite a few enterprise funding choices available on the market, Acuity associate Matthew Byatt takes a short have a look at these accessible.
