What is Seed EIS?

By hello@cornelaccountants.com Startups No Comments on What is Seed EIS?

SEIS is designed to help your company raise money when it’s starting to trade. It does this by offering tax reliefs to individual investors who buy new shares in your company.

You can receive a maximum of £150,000 through SEIS investments. 

There are various rules you must follow so your investors can claim and keep SEIS tax reliefs relating to their shares.

Tax reliefs will be withheld, or withdrawn, from your investors if you do not follow the rules for at least 3 years after the investment is made.

Companies that can use the scheme

Your company can use the scheme if it:

Your company and any of its subsidiaries must:

  • not have gross assets over £200,000 when the shares are issued
  • not be a member of a partnership
  • have less than 25 full-time equivalent employees in total when the shares are issued

If you’ve received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust, you cannot use SEIS.

About the investment

The shares you issue must meet the same requirements as shares issued under EIS.

The money you raise from the investment must be spent within 3 years of the share issue. You must spend the money on either:

  • qualifying trade
  • preparing to carry out a qualifying trade
  • research and development that’s expected to lead to a qualifying trade

You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.

New qualifying trade

If your company is already carrying out a qualifying trade, it must not have been carried out for more than 2 years by either:

  • your company
  • any other person who then transferred it to your company

Your company, or any qualifying subsidiary, must not have carried out any other trade before you started the new trade.

Your company’s trade must be treated as a commercial business with the aim of making profits. However, your trade will not qualify if it consists mostly of an excluded activity.

Before raising your money

You can ask HMRC if your share issue is likely to qualify before you go ahead, this is called advance assurance.

At CORNEL Accountants, we can assist you with the initial advance assurance with HMRC. This procedure is ‘usually’ preferred by all potential investors before any investment is made so do leave yourself plenty of time to achieve the assurance before pitching to investors.

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