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Rules for Companies Under the SEIS Scheme

The Seed Enterprise Investment Scheme (SEIS) is a tax-advantaged scheme which can be a huge help to companies who are going through the fundraising process and trying to attract investors. However, not everyone will be eligible for the scheme, so we’ve put together a brief outline of the SEIS rules for companies who are looking to improve their investment potential.
What is the SEIS scheme?

Introduced in 2012, the Seed Enterprise Investment Scheme helps new companies and startups get more early funding by offering potential investors a series of tax reliefs for their investments, such as capital gains avoidance, loss relief and automatic reductions.

Relief can be claimed on up to a total of £100,000 that has been invested in a SEIS-qualified company. Being an SEIS-qualified company makes you much more attractive to potential investors, however, there are a few conditions that must be met in order to be eligible for the scheme.

What are the rules of the SEIS scheme?

Your company can only receive a maximum of £150,000 through SEIS investments in its lifetime.

While individual investors can claim relief on investments of up to £100,000 per year, your company cannot receive more than £150,000 through the SEIS scheme in total.

This £150,000 includes any other de minimis state aid that has been received within 3 years up to the investment date, and this money also counts towards limits for investments placed by other venture capital schemes in the future.

Any money you gain from investors as part of the SEIS must also be spent within 3 years on either a qualifying trade, preparation for a qualifying trade, or research and development towards a qualifying trade.

Your company must not have more than £200,000 of gross assets at the time that the shares are issued.

Most of the SEIS rules for companies looking to gain funding are aimed at determining the size and experience of your business. If your company has more than £200,000 of gross assets, then it will not be eligible for the SEIS scheme.

As the scheme is aimed at helping early-stage companies get off the ground, companies with assets over £200,000 would be better suited to apply for the Enterprise Investment Scheme (EIS) as the limit on gross assets for that scheme is £15,000,000.

Your company must not have been trading for more than 2 years.

As the SEIS scheme is aimed at early-stage companies, your company cannot have been trading for more than 2 years to be eligible. This includes if any other person has been carrying out the trade and then transferred it to your business. If your company has been trading for more than 2 years, then it may be worth looking at the Enterprise Investment Scheme (EIS) instead if you want to improve your appeal to potential investors.

In addition to this, your company cannot have previously carried out a different trade, cannot be a member of a partnership, and cannot control another company unless it is a qualifying subsidiary.

Your company must have fewer than 25 full-time equivalent employees.

As the SEIS is aimed at helping small companies, to be eligible, you must have fewer than 25 full-time equivalent employees. This means that the total hours of all your employees cannot exceed the FTE units that would be worked by 25 employees working full time. For example, if ‘full time’ equals 40 hours per week then the total hours worked by all employees in your business cannot exceed 1000 hours.

The SEIS rules for companies looking for early-stage funding are primarily aimed at identifying those companies most in need of help to get them off the ground.