As we have mentioned in the past, in today’s corporate world, many start-ups seek support from investment schemes such as the Seed Enterprise Investment Scheme (SEIS), not only to survive the first few years but also to establish solid operational and financial foundations for the companies to endure in the future.
Moreover, such investment schemes make the UK one of the best trading countries for creating innovative start-ups. Since the creation of the EIS, the UK government has intensified its efforts to create financial mechanisms and tools that are useful for all those companies that are taking their first steps, especially small companies.
Investment schemes such as the Seed Enterprise Investment Scheme (SEIS) are necessary because they boost business growth, investor investment, and the country’s economy.
What exactly is the SEIS?
Before we talk about the benefits of the Seed Enterprise Investment Scheme HMRC, it is important to know a little about what this investment scheme is.
The Seed Enterprise Investment Scheme is an investment tool through which companies can raise financial funds from private investors who are incentivized by tax breaks. All tax advantages or benefits are accessible through investment schemes such as the SEIS or the EIS.
In the particular case of the SEIS, there are some benefits such as the following:
- Investors can enjoy tax and loss relief if the company fails.
- They benefit from a tax deduction of 50% of the total amount invested.
- Investors can claim tax relief one year before the tax year.
- After the lapse of 3 years, investors can also enjoy tax relief on all the shares attached.
There are currently many SEIS Rules with which interested companies must comply. Companies can only issue ordinary shares and must be fully paid up. Also, the investment raised must be used for legitimate reasons that are directly involved with the business.
How does a company become eligible for SEIS?
Any company applying for the Seed Enterprise Investment Scheme must comply with additional conditions in addition to the SIX Rules.
- The value of the company’s assets cannot exceed £200,000 during the fundraising and share issue. For this reason, the SEIS is useful for small companies.
- The company cannot be listed on any recognized stock exchange.
- The maximum number of employees may not exceed 25.
- The company can only raise a maximum of £150,000 during the investment process.
- Finally, although foreign investors may participate, interested companies must have permanent offices in the UK.
Importantly, if a company receives benefits from a trust, it is not eligible for the Seed Enterprise Investment Scheme. This falls under the SIX Rules.
How are investors eligible for SEIS?
However, companies are not the only ones that have to meet certain conditions to benefit from the Seed Enterprise Investment Scheme HMRC. Investors also have to meet certain requirements.
- Investors must be UK taxpayers. Even foreign investors must be UK taxpayers if they want to participate in the SEIS.
- They may not hold more than 30% of the company’s shares.
- Investors cannot be employed by or directly connected to the company before investing.
- You can only invest a maximum of £100,000 in any one tax year.
- The benefits of tax relief are not transferable.
- Finally, investors must hold their shares for at least 3 years and then carry out other operations, such as claiming tax relief.
With these conditions, it is clear that only wealthy investors can invest in SEIS-eligible companies. These conditions are designed to make investments effective for companies in the long term. With the Seed Enterprise Investment Scheme HMRC, investors do not need any asset stripping and can invest in as many companies as they wish.
Reasons to choose the SEIS
The SEIS was created in 2012 by HM Revenue and Customs (HMRC) and the UK government. Since then, many entrepreneurs and emerging startups have benefited from SEIS. Here are 3 reasons why you should choose the Seed Enterprise Investment Scheme.
- Protection of investors’ interests: Investors are protected from any factor that puts their interests at risk. If the company fails or starts to show losses, investors can recover their capital or part of the amount invested. Only in this way, companies can use the funds raised without fear of restrictions.
- Investors are incentivized: the process of seeking private investment is made easier as the Seed Enterprise Investment Scheme HMRC incentivizes investors with tax benefits such as 50% tax relief or CGT tax exemptions.
- It‘s not all about money: One of the main reasons why the SEIS is so effective is because companies can benefit from the knowledge and experience of their investors. This can be vital when seeking solutions or reducing the risk of potential financial losses. Under this scheme, investors can participate as directors of a SEIS-eligible company. Investors can play an important role within the management and operational structure of the company.
Due to the advantages it offers, the government has released a study showing an increase of more than 30% of applications from start-ups and entrepreneurs seeking to apply for the Seed Enterprise Investment Scheme (SEIS).
This is just a reflection that schemes such as the EIS or SEIS are very efficient in raising funds and boosting the business economy. For 2018, over £180 million was raised through more than 2,000 SEIS-eligible businesses.
Considerations to take into account
It is important to remember that many investors, especially foreign investors, require Advance Assurance to invest in a company. On the other hand, a company can benefit from the Seed Enterprise Investment Scheme (SEIS) and subsequently from the EIS scheme, after reaching the full financial limits of the SEIS.
To make this kind of transition, companies must also meet the conditions required by the EIS and make the corresponding application through the EIS1 form. It should be clarified that companies can only make this transition if they have previously applied for Advance Assurance for the SEIS and the EIS. In case of any doubts, companies or entrepreneurs can seek advice from experts in investment schemes such as SEIS.
Image credits: People vector created by pch.vector – www.freepik.com