What is SEIS?
Is a government scheme designed to give investors certain tax benefits if they invest in start-up companies.
Start-up entrepreneurs are struggling to find investors even when they have amazing business ideas. We’ve all heard that 90-95% of start-ups fail in the first couple of years of trading. And it is actually true! Investing in start-ups is very risky!
And frankly, even if you have an amazing idea, having an idea is never enough. You need to know how to turn that idea into a multi-million/multi-billion turnover business. DREAM BIG!! Which is why an investment is invaluable! Not only because of the actual money, investors generally tend to have a lot of experience and connections to help you turn your dream into reality.
The rules to qualify for SEIS
- The company is trading for less than 2 years (new trade).
- Established in UK.
- Has less than £200,000 in gross assets.
- Has less than 25 employees.
- If you already had investment through EIS or VCT, you won’t qualify!!
- There are some excluded trades, check non-qualifying trades.
You can only raise a maximum of £150,000 though a SEIS scheme on which your investors can claim relief.
What reliefs are investors entitled to?
I am not going to explain everything, I will just highlight the key areas.
1. Income tax relief
a. Relief is available at 50% of the cost of the qualifying shares in a company that meets the SEIS requirements (maximum annual investment of £100,000) and is given by way of a reduction of their UK tax liability. The claim to relief can be made up to 5 years after the 31 January after the tax year in which the investment was made.
b. They have to hold the shares for 3 years otherwise the relief will be withdrawn.
c. They don’t have to be UK residents but the relief is given against the UK tax liability.
d. There is also a carry-back facility.
2. Capital Gains Tax: Disposal relief
a. If you have received Income tax relief when buying qualifying shares under SEIS scheme and have held the shares for 3 years, the profit you make is free from CGT. This will not apply if you have not made a claim for income tax relief.
Because of the tax benefits, investors will ask if you qualify for SEIS scheme and have an Advanced Assurance letter from HMRC.
What is an Advanced Assurance? Is a letter from HMRC stating that at the time of the application based on the information you provided, you qualify for the SEIS scheme.
But remember! Having the Advanced Assurance letter is not a guarantee you qualify! If things change, you might end up not qualifying so ensure you don’t breach the qualification rules!
How do you apply for Advanced Assurance?
To apply for Advanced Assurance from HMRC you will need the following information:
- The business’ trade.
- Financial forecast (or Business Plan).
- A proposal for shared capital and equity
- Whether the investor intends to claim SEIS relief once shares are purchased
Once you have the information, complete the form SEIS1 https://www.gov.uk/government/publications/seed-enterprise-investment-scheme-compliance-statement-seis1 print it, sign it and send it to HMRC by post together with the supporting documentation.
It might take 4-6 weeks or more to receive the Advanced Assurance or response letter from HMRC! It depends how busy they are. So, apply as soon as possible!
For further information, check out the government page: https://www.gov.uk/guidance/venture-capital-schemes-apply-to-use-the-seed-enterprise-investment-scheme
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