Regardless of where a company is incorporated (domestically or abroad) one of the first questions prospective UK investors will ask you is, “does your Company have SEIS or EIS advance assurance?”
If you don’t know what this is, SEIS and EIS are tax schemes that encourage UK investors to invest in early-stage and high-risk companies. Not every company qualifies for them, but those that meet the eligibility criteria should consider applying for it to assist in fundraising.
What benefit is there for a company?
In simple terms, many investors such as angel investors and funds may exclusively only invest in SEIS and/or EIS qualifying companies. If the company isn’t qualifying, they won’t invest in it.
Being SEIS and/or EIS qualifying makes companies more attractive as investors can avail of income tax relief, CGT relief, IHT relief and loss relief. There is little downside for an eligible company becoming SEIS and EIS qualifying. Worst case, HMRC may say the company isn’t qualifying, and best case a company taps into private investment needed to grow and develop the company.
What do companies need to know?
There is a lot of misinformation on the internet; therefore, there are some points all entrepreneurs and investors should know:
- Companies incorporated outside the UK can qualify for the schemes.
- Only the top company in a group structure can apply for the schemes, but HMRC will be looking at the entire structure to qualify.
- The only companies connected to a qualifying company is the qualifying subsidiaries.
- You can raise non-SEIS/EIS investment as well as SEIS/EIS investment.
- Investors will expect the shares to be issued before the end of the tax year.
- Employees, current directors, and most family members cannot claim SEIS or EIS.
- The investment must be deposited into the company’s bank account.
- It doesn’t matter what currency the bank is.
- The company must be trading for four months, or 70% of the investment must be spent before a company can submit a compliance statement. Investors won’t be able to claim relief before confirmation is received back from HMRC.
In my opinion, the UK is one of the best places in the world to raise capital for early-stage companies because of the Enterprise Investment Schemes. The advance assurance process is relatively simple in most cases, and in my experience, there is little reason not to investigate whether a company is eligible or not. Companies can raise as little as £1 or as much as £12 million (or £20 million if the company is knowledge-intensive).