What Is The Seed Enterprise Investment Scheme?

The purpose of the Seed Enterprise Investment Scheme (SEIS) is to help small, early-stage companies raise equity finance. It does this by offering a range of tax reliefs to individual investors purchasing shares in new businesses. The scheme offers tax relief at a higher rate than the similar Enterprise Investment Scheme (EIS).

### SEIS income tax relief

Income tax relief is available for people purchasing qualifying shares in companies meeting SEIS requirements. The buyers need to be liable for UK tax but they don’t need to be UK residents. The shares have to be held for three years to maintain eligibility for relief – if they are disposed of during that time or if any other requirements of the scheme cease to be met, the relief will be withdrawn or reduced.

SEIS applies for shares issued on or after 6th April 2012. Relief is offered in the form of reduced tax liability at a rate of 50% of the cost of the shares, with a maximum annual investment of £100,000. The investor needs tax liability to set the relief against. Claims can be made up to five years after the 31st January following the tax year of the investment.

So if someone invested £20,000 in SEIS qualifying shares in the tax year of 6th April to 5th April 2013, the relief available would be £10,000 – meaning if their tax liability for the year was £15,000 before SEIS relief, they could reduce it to £5,000 as a result of their investment. If their tax liability before SEIS relief was £7,500, they could reduce their tax liability to zero, but the rest of the available relief would be lost.

A “carry-back” facility allows all or part of the cost of shares in one tax year to be treated as if the shares had been bought in the previous tax year – with the SEIS rate applied to the shares and relief given for the earlier year. However, there is no SEIS rate available for any year earlier than 2012-13, so there’s no carry-back available before then.

There is also capital gains re-investment relief available through SEIS. For information on this, visit the HMRC website here: http://www.hmrc.gov.uk/seedeis/background.htm#2

### Qualifying companies

For the shares to be eligible for SEIS relief, the business receiving the investment must be a UK company unquoted at the time the shares are issued – that means the shares can’t be listed on the London Stock Exchange or any other recognised stock exchange. This doesn’t include the Alternative Investment Market (AIM) and the PLUS Markets (with the exception of PLUS-listed). It must have fewer than 25 employees and have no more than £200,000 in gross assets. Also, the company must not have had any investment from a venture capital trust (VCT) or issued shares subject to EIS. For shares to be eligible, they must have been issued less than two years after the company began trading. Companies can’t receive more than £150,000 through the scheme.

See more on the qualifying rules for companies here: http://www.hmrc.gov.uk/seedeis/how-to-qualify.htm

### Qualifying investors

For an investor to be eligible for relief under SEIS, they can’t be employed by the company for three years following the purchase of shares. However, they can be a director of the company, but must not have more than a 30% interest in the business. They can’t receive “value” from the company, or from anyone connected with the company, and shares must be paid up in full when they are issued, in cash.

See more on the qualifying rules for investors and investment here: http://www.hmrc.gov.uk/seedeis/invest.htm