First, some background for those who don’t yet know what the SEIS is. The Seed Enterprise Investment Scheme (SEIS) is a government initiative that offers up some of the most attractive tax breaks available in the UK to equity investors. In order to access them, one needs to invest in the shares of a small, unlisted company – “small” in this case meaning 250 employees or less, and with maximum gross assets of £15 million. In some cases it’s even possible to invest with SEIS in listed companies, but only those listed on small exchanges like AIM or ISDX. You can watch a great video on it here.
There’s lots of reasons for investors to get involved with SEIS, not just the tax breaks! Although it’s riskier for people to invest in small companies – particularly if you’re comparing it to the risk involved in investing in the big guys, like say, Burberry Group or BP – investors recognise that small companies can be high growth, so while the risk of losing money is higher, the chance of making a big win off an investment is also higher. High risk, high reward.
This combination of tax breaks and potentially high rewards for investors means that many startups launching today will want to get SEIS status. Angel investors and VC firms will normally expect it and will ignore a startup or scaleup company that doesn’t have at least SEIS advanced assurance in place.
So now you want to register, right? Great! Here’s how you apply.
Make sure your company is qualified
In short – your business must have been trading less than two years, it must be a UK registered company (although you don’t have to be a UK citizen), there must not be a parent company, and you must not employ more than 25 people. There are a few more stipulations, which you can find here.
File an ‘Advance Assurance’ form
Advanced Assurance means asking HMRC to provisionally approve your company for SEIS. It isn’t strictly required, but most companies do it to streamline the process further down the line, as HMRC will already be familiar with the intricacies of your business. It takes about four weeks to hear back from HMRC. That application can be found here, and of course we can help with Advanced Assurance applications.
Make sure your shares are in order
Once you’ve received the advance assurance from HMRC and issued the shares to investors, but before investors can claim any tax relief, your company will need to complete form SEIS1 and send it to the Small Companies Enterprise Centre (SCEC). The company can’t submit an SEIS1 form until either it’s been trading for four months or, if not yet trading, that it’s spent at least 70% of the money raised following the advance assurance and issue of relevant shares. This is where you complete the share issue correctly.
Two important things to remember:
- They must be qualifying shares – for example, they cannot have preference rights attached.
- They must be issued in the correct sequence, investor money first, then share issue.
These are critical parts of the process, and the Who Needs Law team is here to make sure everything is done to perfection.
Prepare the Compliance Statement (SEIS1 form)
The compliance statement can be found here. This is the form that’s sent once you have correctly issued shares to investors and normally you send it after 4 months of trading. Investors cannot claim their SEIS tax breaks until you complete this step.You can find the form and guidance here. Once you’ve got your numbers straight and filled it in, you’ll need to send it on to HMRC.
Issue the Compliance Certificate to investors
After HMRC signs off the SEIS1 compliance statement, they’ll send you back a pack of certificates (SEIS3 forms). You send these certificates out to investors to include with their annual tax return. It’s that simple! After that, it’s up to your investors to then use the Compliance Certificate that you’ve sent them to claim SEIS relief when they do their tax returns.
And that’s that! Although we try to break things down for easy understanding, it’s important to recognize there are some technical aspects to SEIS, which if not done properly could result in unhappy investors losing their tax breaks and liability for your company. It’s always recommended to consult a lawyer or accounting firm to guide you through the SEIS process. Contact us today to get started!Contact us about SEIS