Getting SEIS or EIS relief for your investors is not a one-off event. The company has to keep meeting the conditions for a period after the shares are issued. Break them, and investors can lose relief they were relying on, even years later.
Founders often focus on qualifying at the point of the raise. The harder part is staying qualified afterwards.
Why it matters
For investors, the tax relief is often a significant part of the case for investing. If it is withdrawn because of something the company did, the damage to trust is serious, and difficult to repair when you come back for the next round.
What to keep watching
The detailed rules are set by HMRC and change from time to time, so always confirm the current position with a specialist adviser. But the areas that most often cause problems are consistent:
Use of the money. Funds raised must be used for the qualifying business activity, within the required time. Using them for something else, or leaving them unspent, can cause problems.
The qualifying trade. The company must continue to carry on a qualifying trade. A change of direction into an excluded activity can put relief at risk.
Control and independence. Changes to who controls the company, or the company becoming controlled by another company, can affect qualification.
Returns of value to investors. Payments or benefits to investors beyond their normal returns as shareholders can lead to relief being withdrawn.
Share rights. Changing the rights attached to the shares after issue can cause issues if they no longer meet the requirements.
Practical steps
- Keep a compliance checklist and review it before any major decision: a pivot, a new share class, a sale of assets, an investment by another company.
- Take advice before, not after. Most problems can be avoided if the question is asked in advance.
- Keep records of how the money was spent and when.
- Tell investors if something might affect their relief. Surprises are worse than bad news.
The relief is one of the most valuable things an early-stage company can offer investors. Protecting it is part of running the business well.
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. 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.
