Tag Archives: SEIS

SEIS and EIS loss reliefs to be uncapped

As part of Budget 2012, the Government announced the introduction of a limit on currently uncapped income tax reliefs, from April 2013. The limit proposed capping reliefs at £50,000 or 25% of an individual’s annual income. This meant that loss relief with respect to any EIS/SEIS investment would be subject to these caps.

But, the Government has just released the results of a consultation entitled “Delivering a cap on income tax relief: a technical Consultation” from which they sought feedback on the operation of the relief cap.

As a result of this feedback, the Government has decided that share loss relief for EIS/SEIS qualifying shares should be excluded from this cap. This means that if any investment an investor makes in an EIS or SEIS eligible company goes bad, the investor will be able to seek loss relief with respect to the full amount of the investment (subject to income tax and any other reliefs already sought), rather than only up to £50,000 or 25% of their annual income.

This is great news for investors, and highlights the Government’s continued focus on providing appealing incentives for investors to invest in new, high-growth companies. SEIS just got better!

To learn more about SEIS reliefs and requirements, visit our SEIS page.

Ensuring investors are protected and actually receive EIS or SEIS tax reliefs

Once you have invested in an EIS/SEIS eligible company on Seedrs, you may now be wondering how on earth you can take advantage of these incredible tax breaks. We’ve had a number of people ask how they claim the relevant tax relief, and how we ensure that an investment made into a company which is labelled as EIS/SEIS eligible will be eligible for relief when the investment closes. These are all great questions, and we have written this post to help explain the EIS/SEIS process and our stringent procedures that we have in place to ensure that any investment made through Seedrs will be eligible for relief, if a listing is labelled as EIS/SEIS eligible.

Whether an investor will be able to claim EIS/SEIS relief on their investment depends on a number of factors, including 1. whether the company is eligible, 2. whether the particular investment is eligible, and 3. whether the investor themselves are eligible. Point 3 is purely down to the individual circumstances of the investor and therefore we only focus on points 1 and 2.

When an entrepreneur submits a listing to Seedrs, they are required to answer an EIS/SEIS questionnaire which we have designed. Based on the responses that the entrepreneur provides, an automated decision will be generated as to whether or not they are eligible for EIS or SEIS relief. In addition, once the entrepreneur has submitted their listing, we perform a manual analysis to decide whether we agree with the outcome of the questionnaire. Only when we are satisfied that the business, and the particular investment that they are looking to raise on Seedrs, is likely to be eligible for EIS/SEIS relief do we label it as such on the listing. It is important to note that you can never be a 100% sure until the HMRC actually issues the relevant tax certificate, as explained below.

If a listing reaches 100% investment on our site, the company does not automatically receive the money. At that stage we undertake detailed legal due diligence on the company and the directors to ensure that everything is in order. As part of this due diligence, we work with them to apply to HMRC for EIS/SEIS advanced assurance. This application outlines to HMRC details of the proposed Seedrs investment, the company’s structure and their activities in advance of an issue of shares, so that the HMRC can advise on whether or not the proposed investment on Seedrs is likely to qualify for relief. Advanced assurance was created by the HMRC for exactly this purpose, so that an investor can get comfort that they will receive the relief before they actually make the investment.

If the advanced assurance certificate is NOT granted by the HMRC, then this is deemed a material deviation from the terms of the investment, and the investment would be cancelled by us and the investors would have their investment credited back to their Seedrs account. We absolutely would not close an investment if a listing was labelled as EIS/SEIS eligible, but the HMRC did not provide the relevant advanced assurance certificate.

If the advanced assurance certificate IS granted, and we were happy with the outcome of all of the other legal due diligence that we have undertaken, then we would close the investment and transfer the funds to the company in exchange for the relevant shares. We would then work with them to submit the relevant EIS1/SEIS1 certificate to the HMRC. If the HMRC accepts that the company, its activities and the shares meet the requirements of the relevant EIS/SEIS scheme, it will issue the company with a certificate to that effect, and will supply claim forms (EIS3/SEIS3) which investors can then use to claim the relevant tax relief when submitting their personal tax forms. Seedrs would pass these claim forms on to the investors. Please note that the company may not submit the EIS1/SEIS1 certificate until certain conditions have been met (for example under SEIS 70% of the funds must have been spent), but pursuant to the subscription agreement entered into between Seedrs and the company at the time of closing the investment, the company is under a contractual obligation to ensure that it completes all of the relevant paperwork to ensure that the EIS/SEIS certificates are completed and sent to HMRC. This is just one of many examples of why it is absolutely key to have an FSA regulated institution, such as Seedrs, managing the investment and being the contractual intermediary between the investors and the entrepreneur. It is important to remember however that a company has to continue to satisfy certain EIS/SEIS eligibility requirements going forward (for example, it can not change its business activities to undertake one of the EIS/SEIS excluded activities) otherwise the investor would lose their relief, and while the chances of this happening are quite remote, it is an unavoidable part of the EIS/SEIS system.

These procedures are designed to ensure that when an investor makes a decision to invest in an EIS/SEIS eligible listing, they can be rest assured that we at Seedrs have done everything in our power to ensure that the investor, provided that they are themselves eligible for the relief, will obtain the appropriate tax relief on their investment.

Happy investing!

Getting to Grips with the Seed Enterprise Investment Scheme (SEIS)

It’s relatively rare to get a lawyer excited. About anything. But, the introduction of the Seed Enterprise Investment Scheme (SEIS) in April was a big enough announcement to elicit wide-eyed disbelief and giggles of excitement from me. And yes, I am a lawyer.

SEIS is designed to help small, high-risk companies raise money by offering a range of generous tax reliefs to investors who purchase new shares in them. Seedrs will have a significant number of Seed EIS eligible companies – and any investment made in such companies through Seedrs will be eligible for relief (to the extent that the investors themselves are eligible). So, finding great, Seed EIS eligible companies in which to invest in will be simple.

We thought it would be helpful to lay out a high-level overview of how SEIS works both for startups and investors.

SEIS for Investors
SEIS offers investors a combined tax relief of up to 78%, which includes:

  • Income tax relief of 50% for investments of up to £100,000 per tax year; and
  • For 2012/2013 only, complete relief on any Capital Gains Tax realised during the year if the gains are reinvested in eligible companies (again up to £100,000). With CGT at 28%, this relief plus the 50% income tax relief means you can get up to 78% of your money back.
  • In addition, you won’t pay any CGT on the disposal of SEIS shares if you hold them for three years or more.

SEIS for Entrepreneurs
SEIS was made with early-stage startups in mind. The main eligibility requirements are as follows:

  • The company must be carrying on or planning to carry on a new business and the shares issued within two years after the company’s incorporation;
  • The new business must be a qualifying trade so excludes a number of activities such as property development, leasing, and the provision of legal services;
  • The company must have fewer than 25 full-time employees;
  • At the time of the SEIS investment, the company’s gross assets must not exceed £200,000; and
  • Qualifying companies may raise up to £150,000 under the scheme though the funds raised must be used within three years.

These changes will take effect for any investments made from 6 April 2012 onwards, subject to the scheme receiving Royal Assent which is likely to be in July.

For more information on SEIS check out our SEIS/EIS Comparison Table for a highlight of reliefs and comparison with the Enterprise Investment Scheme (EIS), which suits slightly later stage businesses. And before making an investment, be sure to check with your professional tax adviser to confirm whether that the reliefs apply to you.