The next step

SEIS

[Checklist]

Detailed commentary on the SEIS conditions

[Memo]

HMRC’s SEIS advance assurance and the conditions

[Weblink]

Take advantage of SEIS cash injection

Business angels

An alternative to traditional borrowing to help finance your company is to bring in outside investors - business angels - who’ll provide cash in return for shares. Naturally, there are pros and cons for you and the investors. The seed enterprise investment scheme (SEIS) can balance the negatives.

An attractive investment

The SEIS is available for your company if it’s a new or recent start-up. You can use the SEIS tax incentives to help attract investors. The tax incentives are:

• income tax relief equal to 50% for investments of up to £200,000 in a SEIS company
• exemption from any capital gain tax for growth in value of the SEIS shares; and
• capital gains tax reinvestment relief. In effect an exemption of 50% of any capital gain which occurs in the same year as the income tax incentive is allowed
• the shares can qualify for inheritance tax business property relief.

Trap. The maximum total SEIS investment your company can receive is £250,000.

Tip. The income tax and reinvestment relief can be claimed by the investor for the tax year in which they invest or, if they elect, for the previous year.

Can you offer SEIS shares?

To offer SEIS shares to potential investors your company must meet conditions. The main requirements are that it must be unquoted at the time you issue the shares; immediately before the share issue it must not have gross assets in excess of £350,000; it must have a permanent establishment in the UK throughout the following three years, and carry on a qualifying trade.

For detailed commentary on the SEIS conditions, visit https://www.tips-and-advice.co.uk , Download Zone, year 24 issue 11.

Tip. Use our SEIS checklist to help you establish that your company meets the conditions for the SEIS (see The next step ).

Tip. On request HMRC will provide “advance assurance” that your company is entitled to issue shares that qualify for the SEIS tax breaks (see The next step ). When assurance is received, provide a copy to prospective investors to encourage their investment.

After the share issue

Make sure your investors know that after you’ve issued shares they must wait until you send them an SEIS 3 certificate which they need to claim the tax breaks. You can only issue an SEIS 3 after HMRC has given permission. It will only do this once your company has traded for four months and has spent at least 70% of the SEIS investment it has received.

Trap. Note that some of the conditions your company met to qualify for SEIS status must continue to be met for a further three years or tax reliefs for your investors are lost (see The next step ).

For the SEIS checklist, a link to HMRC’s SEIS advance assurance webpage and which conditions must continue for three years, visit https://www.tips-and-advice.co.uk , Download Zone, year 24 issue 11.