Read time: 3m read
As an early-stage company, one of your biggest challenges is how to fund growth.
Seed Enterprise Investment Schemes (SEIS) are a lifeline for many young businesses hungry for funding. As interest rates keep rising, these schemes could become even more popular for fast-growing companies needing an urgent cash injection but keen to avoid bank loans.
For SEIS investors, the potential returns are stellar if the investee business performs well – and the schemes offer some of the most generous tax breaks in the UK.
SEIS schemes have brought around £1.4 billion of funding into early-stage investments since they launched in 2012.1 According to UK government data, more than 2,000 companies used SEIS in 2020-21, and funding raised through them grew 4% to £175 million, from £169 million the previous year.2
The schemes are particularly popular in information and communications companies, which accounted for 41% of all SEIS investment that year.3
What is an SEIS and how much can a company raise?
An SEIS is designed to help your firm raise money in the first two years of trading. It does this by offering attractive tax reliefs to individual investors who buy new shares in your company. Businesses can receive a maximum of £150,000 through SEIS investments (£250,000 from April 2023). It is one of four schemes designed to help small or medium-sized companies raise money – the others are enterprise investment schemes (EIS), venture capital trusts (VCT) and social investment tax relief.
How companies benefit from SEIS
Simon Martin, Chartered Financial Planner at Technical Connection, says: “As a growing young business, an SEIS can help you improve profits because it enables you to get funding to achieve your business goals, such as buying new machinery or premises to expand production, or helping you move into new markets. It could also reduce risk, as it’s an alternative to borrowing large amounts from a bank. As interest rates keep rising, repaying bank loans can make a big dent in your future cash flows.
“Also, banks can be strict with their lending and repayment terms, but SEIS investors may be more flexible and understanding about the ups and downs of a small business.”
How do I get SEIS approval?
One challenge is that you must meet a multitude of qualifying rules4 to be an SEIS investee company. This is so investors can claim and keep the tax reliefs.
Your business must have fewer than 25 employees, less than £200,000 gross assets and have been trading for no longer than two years (£350,000 in gross assets and trading for no longer than three years from April 2023). You must spend the money you raise within three years on a qualifying trade.
Your company must be established in the UK and aim to make profits. It must not trade on a stock exchange, nor have any arrangements to become a quoted company. It should have never controlled or been controlled by another company, unless by a qualifying subsidiary.
Your firm must not be in a partnership. If you have received investment through the EIS or VCT schemes, you cannot use SEIS. Your SEIS shares must also meet the EIS rules.
These are a lot of hoops to jump through, but your investors will lose the tax reliefs if you don’t follow all these rules for at least three years after the investment.
But unlike the hopeful entrepreneurs on TV’s Dragon’s Den, you do not need to raise the full amount stated in your application.
What are the risks for SEIS investors?
Simon says these rules make sure suitable companies receive the investment. But these stiff criteria might be one reason there is not a higher take-up. Another is the risk to the investor of putting money into such a young company.
“That will put many retail investors off because they wouldn’t have the appetite,” he says. “Investors have usually used up their other tax vehicles, but not always. Some could just be high risk by nature and looking for multiple times growth in value. But they must accept that, equally, the value could go to nil.”
They certainly need to be experienced investors with plenty of capital and capacity for loss on the investment.
What is the tax relief for SEIS investors?
To compensate them for the risk, SEIS investors can claim Income Tax relief on 50% of investments, up to £100,000 a year5 (£200,000 a year from April 2023). They can claim this in the tax year they invest in or the year before. There are also two attractive Capital Gains Tax (CGT) reliefs available with SEIS.6
How we can help
SEISs are specialised funding schemes, and you should seek expert advice before applying for one. We can help you look at all your business needs and advise on the best strategy to ensure sustainable growth.
Read time: 3m read
As an early-stage company, one of your biggest challenges is how to fund growth.
Seed Enterprise Investment Schemes (SEIS) are a lifeline for many young businesses hungry for funding. As interest rates keep rising, these schemes could become even more popular for fast-growing companies needing an urgent cash injection but keen to avoid bank loans.
For SEIS investors, the potential returns are stellar if the investee business performs well – and the schemes offer some of the most generous tax breaks in the UK.
SEIS schemes have brought around £1.4 billion of funding into early-stage investments since they launched in 2012.1 According to UK government data, more than 2,000 companies used SEIS in 2020-21, and funding raised through them grew 4% to £175 million, from £169 million the previous year.2
The schemes are particularly popular in information and communications companies, which accounted for 41% of all SEIS investment that year.3
What is an SEIS and how much can a company raise?
An SEIS is designed to help your firm raise money in the first two years of trading. It does this by offering attractive tax reliefs to individual investors who buy new shares in your company. Businesses can receive a maximum of £150,000 through SEIS investments (£250,000 from April 2023). It is one of four schemes designed to help small or medium-sized companies raise money – the others are enterprise investment schemes (EIS), venture capital trusts (VCT) and social investment tax relief.
How companies benefit from SEIS
Simon Martin, Chartered Financial Planner at Technical Connection, says: “As a growing young business, an SEIS can help you improve profits because it enables you to get funding to achieve your business goals, such as buying new machinery or premises to expand production, or helping you move into new markets. It could also reduce risk, as it’s an alternative to borrowing large amounts from a bank. As interest rates keep rising, repaying bank loans can make a big dent in your future cash flows.
“Also, banks can be strict with their lending and repayment terms, but SEIS investors may be more flexible and understanding about the ups and downs of a small business.”
How do I get SEIS approval?
One challenge is that you must meet a multitude of qualifying rules4 to be an SEIS investee company. This is so investors can claim and keep the tax reliefs.
Your business must have fewer than 25 employees, less than £200,000 gross assets and have been trading for no longer than two years (£350,000 in gross assets and trading for no longer than three years from April 2023). You must spend the money you raise within three years on a qualifying trade.
Your company must be established in the UK and aim to make profits. It must not trade on a stock exchange, nor have any arrangements to become a quoted company. It should have never controlled or been controlled by another company, unless by a qualifying subsidiary.
Your firm must not be in a partnership. If you have received investment through the EIS or VCT schemes, you cannot use SEIS. Your SEIS shares must also meet the EIS rules.
These are a lot of hoops to jump through, but your investors will lose the tax reliefs if you don’t follow all these rules for at least three years after the investment.
But unlike the hopeful entrepreneurs on TV’s Dragon’s Den, you do not need to raise the full amount stated in your application.
What are the risks for SEIS investors?
Simon says these rules make sure suitable companies receive the investment. But these stiff criteria might be one reason there is not a higher take-up. Another is the risk to the investor of putting money into such a young company.
“That will put many retail investors off because they wouldn’t have the appetite,” he says. “Investors have usually used up their other tax vehicles, but not always. Some could just be high risk by nature and looking for multiple times growth in value. But they must accept that, equally, the value could go to nil.”
They certainly need to be experienced investors with plenty of capital and capacity for loss on the investment.
What is the tax relief for SEIS investors?
To compensate them for the risk, SEIS investors can claim Income Tax relief on 50% of investments, up to £100,000 a year5 (£200,000 a year from April 2023). They can claim this in the tax year they invest in or the year before. There are also two attractive Capital Gains Tax (CGT) reliefs available with SEIS.6
How we can help
SEISs are specialised funding schemes, and you should seek expert advice before applying for one. We can help you look at all your business needs and advise on the best strategy to ensure sustainable growth.
Read time: 3m read
As an early-stage company, one of your biggest challenges is how to fund growth.
Seed Enterprise Investment Schemes (SEIS) are a lifeline for many young businesses hungry for funding. As interest rates keep rising, these schemes could become even more popular for fast-growing companies needing an urgent cash injection but keen to avoid bank loans.
For SEIS investors, the potential returns are stellar if the investee business performs well – and the schemes offer some of the most generous tax breaks in the UK.
SEIS schemes have brought around £1.4 billion of funding into early-stage investments since they launched in 2012.1 According to UK government data, more than 2,000 companies used SEIS in 2020-21, and funding raised through them grew 4% to £175 million, from £169 million the previous year.2
The schemes are particularly popular in information and communications companies, which accounted for 41% of all SEIS investment that year.3
What is an SEIS and how much can a company raise?
An SEIS is designed to help your firm raise money in the first two years of trading. It does this by offering attractive tax reliefs to individual investors who buy new shares in your company. Businesses can receive a maximum of £150,000 through SEIS investments (£250,000 from April 2023). It is one of four schemes designed to help small or medium-sized companies raise money – the others are enterprise investment schemes (EIS), venture capital trusts (VCT) and social investment tax relief.
How companies benefit from SEIS
Simon Martin, Chartered Financial Planner at Technical Connection, says: “As a growing young business, an SEIS can help you improve profits because it enables you to get funding to achieve your business goals, such as buying new machinery or premises to expand production, or helping you move into new markets. It could also reduce risk, as it’s an alternative to borrowing large amounts from a bank. As interest rates keep rising, repaying bank loans can make a big dent in your future cash flows.
“Also, banks can be strict with their lending and repayment terms, but SEIS investors may be more flexible and understanding about the ups and downs of a small business.”
How do I get SEIS approval?
One challenge is that you must meet a multitude of qualifying rules4 to be an SEIS investee company. This is so investors can claim and keep the tax reliefs.
Your business must have fewer than 25 employees, less than £200,000 gross assets and have been trading for no longer than two years (£350,000 in gross assets and trading for no longer than three years from April 2023). You must spend the money you raise within three years on a qualifying trade.
Your company must be established in the UK and aim to make profits. It must not trade on a stock exchange, nor have any arrangements to become a quoted company. It should have never controlled or been controlled by another company, unless by a qualifying subsidiary.
Your firm must not be in a partnership. If you have received investment through the EIS or VCT schemes, you cannot use SEIS. Your SEIS shares must also meet the EIS rules.
These are a lot of hoops to jump through, but your investors will lose the tax reliefs if you don’t follow all these rules for at least three years after the investment.
But unlike the hopeful entrepreneurs on TV’s Dragon’s Den, you do not need to raise the full amount stated in your application.
What are the risks for SEIS investors?
Simon says these rules make sure suitable companies receive the investment. But these stiff criteria might be one reason there is not a higher take-up. Another is the risk to the investor of putting money into such a young company.
“That will put many retail investors off because they wouldn’t have the appetite,” he says. “Investors have usually used up their other tax vehicles, but not always. Some could just be high risk by nature and looking for multiple times growth in value. But they must accept that, equally, the value could go to nil.”
They certainly need to be experienced investors with plenty of capital and capacity for loss on the investment.
What is the tax relief for SEIS investors?
To compensate them for the risk, SEIS investors can claim Income Tax relief on 50% of investments, up to £100,000 a year5 (£200,000 a year from April 2023). They can claim this in the tax year they invest in or the year before. There are also two attractive Capital Gains Tax (CGT) reliefs available with SEIS.6
How we can help
SEISs are specialised funding schemes, and you should seek expert advice before applying for one. We can help you look at all your business needs and advise on the best strategy to ensure sustainable growth.