Government SEIS and EIS Explained

by Startacus Admin

Now for something devilishly over complicated and incredibly convoluted, which can only mean one thing; Her Majesty’s Revenue and Customs are involved.

Now, we are sure that you have come across the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme in the past…and quite understandably, you were probably horrified into retreat. These schemes, are actually a very useful little way of boosting investment in UK startups, but the problem is they are characteristically complex and difficult to wrap your head around. To help you get a grasp of the important details we have done some rallying around and put together this quick guide, which should give you the information you will need to decide if either of these schemes are worth further investigation.

General aims of these schemes

So, the schemes both have one simple overarching aim; to boost growth of both new and high growth potential UK businesses. They work on a principle of offering large tax relief perks to investors who inject capital into British businesses, specifically those that are either at an early stage, or deemed to operate under a high-risk business model.

The idea is, that these incentives will be encouraging enough to tempt affluent individuals to purchase shares in businesses that might otherwise find it challenging to secure investment.

These are extremely generous schemes which can see investors receive in excess of 50% of their capital back in the form of tax breaks and refunds.

Enterprise Investment Scheme

This one allows small high-risk businesses to raise up to £5 million in capital investment.

There’s a list of criteria as long as the Nile, but we have sifted through them to find what we reckon are the key ‘killer’ factors. Your business;

• Must be based in the UK or at the very least have a well established, significant presence in the UK

• Cannot be listed on a recognised stock exchange

• Must not have control over any other company which would not qualify for the scheme

• Can have a maximum of 250 employees

• Must have total assets of no more than £15 million

The Seed Enterprise Investment Scheme (SEIS)

This scheme helps new and early-stage businesses raise capital investment of up to £150,000. It is suitable for smaller businesses than the Enterprise Investment Scheme and is designed to encourage fast and sustained early stage growth; hence the ‘seed’ element of its title. To qualify for this scheme, businesses;

• Must be based in the UK or at the very least have a well established, significant presence in the UK

• Cannot be listed on a recognised stock exchange

• Need to have 24 employees or less

• Cannot have assets worth more than £200K (that includes the assets of any subsidiaries)

• Must not have ever received funds from a Venture Capital Trust (these are government schemes)

• Must be trading for two years or less.

Restrictions on how and when the money can be spent

The money received through either of these schemes has quite tight restrictions placed on how it can be spent, which is intended to ensure that businesses glean the most benefits from it.

You can take a look at some of these restrictions here, but be aware of how important these are, since failure to stay within the boundaries can result in your investor losing their tax benefit from it.

Where Next?

If all of this isn't too off putting and you think that one of these schemes might be appropriate for your business, you can get more details on the Enterprise Investment Scheme and The Seed Enterprise Investment Scheme

We strongly recommend you have a box of aspirin tablets to hand!

 

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Published on: 20th February 2015