As a start-up looking for investment, you will be asked if you qualify for any of the available venture capital schemes.
What are venture capital schemes?
Broadly, there are 4 schemes that offer tax reliefs to individuals that buy and hold shares, bonds or assets for a specific period of time:
- Seed Enterprise Investment Scheme (SEIS)
- Enterprise Investment Scheme (EIS)
- Social Investment Tax Relief (SITR)
- Venture Capital Trust
If you have a UK base, you carry out a trade that qualifies (check for non-qualifying trades), you don’t buy or sell shares on the stock exchange at the time of application, you meet the qualifying conditions of the specific scheme you apply for and you make your first sale within 7-10 years, then you most likely qualify.
However make sure you check first before you apply!
You can raise any amount of money, £5,000, £10,000 doesn’t matter as there is no minimum amount you can raise. There are limits in terms of maximum amounts, £5 million in any 12 months and £12 million during the lifetime of your business. For certain activities (eg, innovation, research and development) there might be higher limits, just check.
Rules to apply for each scheme
1. EIS Scheme
a. The company is trading for more than 4 months.
b. The company has less than £15 million gross assets.
c. And less than 250 employees.
d. Or 500 employees if you meet certain conditions.
2. SEIS Scheme
a. The company is trading for less than 2 years (new trade)
b. Has less than £200,000 in gross assets
c. And less than 25 employees
d. If you already had investment through EIS or VCT, you won’t qualify!!
Read more about the scheme in my article Seed Enterprise Investment Scheme (SEIS) overview.
3. SITR Scheme
a. Only if you are a registered charity, community interest company, community benefit society
b. Less than £15 million gross assets
c. Less than 500 employees
A VCT is a company authorized by HMRC and they may invest in your company if you have:
a. Less than £15 million gross assets
b. Less than 250 employees
The only way to guarantee investors that you qualify for any scheme is if you apply for an Advanced Assurance. If you are seeking investment, I suggest you apply for an Advanced Assurance with HMRC as soon as possible. It depends how busy they are but it can take weeks to receive a response. If you receive an Advance Assurance letter from HMRC, bear in mind, they only confirm you qualify based on the information at the time of the application!
For example, you apply for a SEIS Advance Assurance, you receive the confirmation from HMRC then you get investment through EIS Scheme or received investment from a VCT. You cannot still claim you qualify for SEIS scheme based on the letter received as that is not the case!
A company can issue shares under SEIS, other shares under EIS or investment from VCT. BUT, make sure you spend at least 70% of the amount raised under SEIS before you issue more.
But, if you are unsure, check with HMRC or a professional.
Subscribe to my newsletter