“What Exactly Is SEIS and EIS Tax Relief?”
Overheard at a startup...
Some questions in life are more fundamental than others and some are more specific or technical, and so it is in the world of early stage businesses. But for the person asking the question, each carries the same weight, and each is of the same importance because at the time of asking it is that point that is not understood.
One of the more technical and specific questions that I often overhear is ‘what exactly is SEIS and EIS Tax Relief?’ and I am also often asked the next stage of that question which asks for much more detail about how they work.
For the founders of many early stage business starting to think about raising funds, the very first thing that they are told to do by someone is to make sure that the company is SEIS or EIS approved, but in many cases they are left wondering what exactly that is and what the benefits are.
SEIS stands for Seed Enterprise Investment Scheme and EIS stands for Enterprise Investment Scheme and both are tax relief schemes created by the UK Government to encourage investment from individuals into UK registered startups and early stage businesses. Essentially, they both operate in the same way although SEIS is more advantageous but has greater restrictions than EIS.
The majority of UK registered startup companies qualify although there are some restrictions on sectors or activities such as farming or running a hotel. The business must also be under a certain age and size and with a limited number of employees. It is the business that applies to HMRC for ‘Advanced Assurance’ that when they start to raise funding that investment into the business will qualify, but as the tax relief is claimed by the individual investor it depends on the individuals own personal circumstances. In order to qualify the investor mut pay tax in the UK and the scheme is not open to founders although they can claim tax relief in other ways.
