Through the Seed Enterprise Investment Scheme (SEIS), investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for any gains on the SEIS shares.
The Seed Enterprise Investment Scheme targets brand new companies, so the loss relief element shared with EIS is a huge advantage. For example, if you pay tax at 45% and make an investment of £10,000 that fails completely, you only lose £2,750 due to the tax relief.
That – alongside other benefits – is what makes SEIS so attractive to investors and why we encourage all entrepreneurs to seek advance assurance from HMRC that they are eligible.
The benefits of SEIS tax relief
- Income tax relief – Up to 50% income tax relief on investments up to £100,000 per tax year.
- Loss relief – If the shares are disposed of at a loss, you can elect that the loss be set against any income tax of that year or of the previous year.
- CGT disposal relief – Any gain is Capital Gains Tax (CGT) free if the investment is held for at least three years.
- CGT reinvestment relief – 50% of capital gains are exempt from CGT if it is re-invested in a SEIS-qualifying company.
Which companies may be SEIS eligible?
Companies may qualify to raise funding through SEIS if they:
Are less than 2 years old
Have less than £200,000 in gross assets
Have less than 25 employees
Who can claim SEIS relief?
To qualify, you must be a UK taxpayer at the time of investment.
Like EIS, there are two main restrictions to SEIS eligibility, both relating to whether you are connected to the company or become connected during the period of your investment. This applies for up to 2 years before and 3 years after the investment. This “connection” can take two forms:
1) Connection by financial interest
You are not eligible if you control the company or hold more than 30% of the share capital or voting rights. All relatives except siblings are included within these restrictions.
2) Connection by employment
If you are an employee or partner of the company, connected with it and therefore not eligible. The same goes for associates, including business partners, trustees and relatives.
Unlike EIS, SEIS guidelines do not consider directors as employed by the company. This means that if you are a director of the company you are investing in and are not connected by financial interest, you can still apply for SEIS relief.
For more information, please see the HMRC website.
How to claim SEIS
For clarity, all steps in the process are included here, including what goes on behind the scenes on the part of the company and HMRC:
Make sure that the company qualifies for SEIS. The company must fulfil the criteria above (“what companies may be SEIS eligible”). If the company is eligible, they will be listed as ‘SEIS’ on Crowdcube
Confirm the company has ‘Advance Assurance’. This is a certificate emailed to the investor by HMRC confirming that investors will benefit from SEIS. This isn’t a requirement, but it’s best practice to make sure.
Make the investment. The investment must be in ordinary shares worth no more than 30% of the company, bought in cash.
Wait to receive your SEIS3 form. The company will submit form SEIS1 to the Small Companies Enterprise Centre (SCEC) of HMRC. Once the SEIS1 has been reviewed and the requirements met, the SCEC will issue a form SEIS3 to the company, who passes it on to each investor.
Use the SEIS3 form to claim tax relief. This differs slightly depending on whether you submit your own tax filings:
- If you are submitting your own tax filings, you don’t need to send the SEIS certificate to HMRC along with your return – only if they request it.
- If you aren’t submitting your own tax filing, you need to complete pages 3&4 on the SEIS3 form and send them to the office that deals with your PAYE. You can find this information on any previous correspondence you may have received from HMRC. Your employer should also hold this information.
When can you claim SEIS?
From: Four months after the business began trading.
Until: Five years after 31st January in the tax year after you made the investment. So, if you made the investment in the 2020 tax year, you can claim SEIS up to 31st January 2026.
Contact Zyla Accountants today for support with accessing the Seed Enterprise Investment Scheme (SEIS) for your business.