SEIS and EIS: the differences that matter when you raise

SEIS and EIS are UK government schemes that give investors tax relief for backing early-stage companies. They are generous, they are strictly conditioned, and the conditions are where most of the trouble happens.

This is what separates them, and what a company has to get right before it raises under either.

The basic difference

SEIS — the Seed Enterprise Investment Scheme — is for the earliest stage. Smaller companies, smaller raises, more generous relief, because the risk is higher.

EIS — the Enterprise Investment Scheme — sits above it. Larger companies, larger raises, relief at a lower rate.

A company typically uses SEIS first and moves to EIS as it grows. The two can be combined in sequence, but the order matters and getting it wrong can cost the relief entirely.

What the company has to satisfy

Both schemes test the company, not just the investor. The conditions cover how old the company is, how much it has in gross assets, how many employees it has, what trade it carries on, and what the money will be used for.

Several trades are excluded outright. Property development, financial services, legal and accountancy work, energy generation benefiting from certain subsidies, and others. If the business sits near one of those lines, that question needs answering before anything else.

The company must also be carrying on, or preparing to carry on, a qualifying trade — and must continue to for a set period afterwards. This is not a test you pass once.

The holding period, and why it catches people

The investor has to hold the shares for a minimum period. Sell early, and the relief is withdrawn.

Less obviously, the company can also break the conditions after the investment. A change of trade, a restructure, an acquisition, or money spent on something outside the stated use of funds can disqualify a raise retrospectively.

When that happens the relief is clawed back from investors who did nothing wrong. They will not be relaxed about it, and they will have been told the relief was part of the proposition.

Advance assurance

Advance assurance is HMRC’s provisional view, given before the raise, that the company looks likely to qualify.

It is not legally binding and it is not technically required. In practice, raising without it is very hard. Experienced investors will not commit on a promise that the relief should be available; they want HMRC’s letter in the pack.

Get it before outreach starts, not during. Applying mid-raise means either a pause or a set of conversations built on an assumption.

What this means if you are raising

Three things, in order.

Establish whether the company qualifies at all, and for which scheme, before you build anything else. This is a matter of fact, not of presentation.
Get advance assurance in hand before you approach investors.
Write the use of funds so that spending it as described keeps you inside the rules — and then spend it that way.

One thing worth saying plainly: SEIS and EIS are UK schemes. They do nothing for an investor outside the UK tax net, and structuring a raise around them narrows who can usefully participate. That is a fair trade for a UK company raising from UK investors, and a poor one otherwise.

The relief improves a good investment. It cannot rescue a poor one, and investors who have been through a clawback know the difference.

Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.

BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Tax treatment depends on individual circumstances and may change. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.