Seed Enterprise Investment Scheme (SEIS)

The Seed Enterprise Investment Scheme (SEIS) offers the most generous tax reliefs to investors in the UK - 50% income tax relief plus CGT exemptions. It's designed specifically for very early-stage companies seeking seed capital to prove their business concept.

Who can use SEIS

Your company can use SEIS if it meets these requirements:

• Company age: Less than 3 years since first commercial sale (increased from 2 years in April 2023)
• Gross assets: £350,000 or less at time of share issue (increased from £200,000 in April 2023)
• Employees: Fewer than 25 full-time equivalent
• Maximum funding: £250,000 total lifetime (increased from £150,000 in April 2023)
• UK permanent establishment: Must have a base in the UK
• Independence: Cannot have been controlled by another company since incorporation

Qualifying trade requirement

Your company must conduct a qualifying trade on a commercial basis with a view to profit. Excluded activities (which cannot be more than 20% of your trade) include:

• Coal or steel production
• Farming or market gardening
• Leasing activities
• Legal or financial services
• Property development
• Running hotels, nursing homes, or care homes
• Generation of electricity, heat, gas, or fuel
• Banking, insurance, money-lending

Connected party restrictions

• Investors cannot be employees of the company (unless also a director)
• You cannot use SEIS if you've already received EIS or VCT investment - SEIS must come first
• No reciprocal investment arrangements (subscribing to each other's share issues)

Tax reliefs for investors

SEIS offers investors the highest tax reliefs of any UK venture capital scheme:

Income tax relief

• Rate: 50% on qualifying subscriptions (compared to 30% for EIS)
• Annual limit: £200,000 per tax year (maximum relief of £100,000)
• Example: A £50,000 investment gives the investor £25,000 income tax relief

Capital gains tax exemption

• If held for at least 3 years, gains on SEIS shares are completely free from CGT
• Investor must have received full income tax relief with none subsequently withdrawn
• Exception: sales to spouse or civil partner within 3 years do not trigger CGT

CGT reinvestment relief

• 50% of gains exempt from CGT when reinvested in SEIS shares
• Annual limit: £100,000 (£50,000 worth of gains)
• Must dispose of an asset and reinvest the gain in SEIS shares in the same tax year

Loss relief

• Can offset losses against chargeable gains
• Reduce cost of shares by income tax relief given when calculating loss

The application process

Step 1: Apply for advance assurance (recommended)

Submit an application to HMRC via their online form before issuing shares. While not mandatory, advance assurance gives investors confidence. Include:

• Proposed fundraising amount
• Business plan and financial forecasts
• Latest accounts
• Memorandum and articles of association
• Register of members
• Investor pitch materials

Advance assurance approval rate (2024-25): 85%

Step 2: Issue shares to investors

Once you have advance assurance (or choose to proceed without), issue shares. Notify HMRC of any changes since your application.

Step 3: Submit SEIS1 compliance statement

This statutory declaration confirms your company meets all qualifying conditions and will continue to do so for 3 years. Required before investors can claim relief.

Step 4: Issue SEIS3 certificates

After HMRC approves your SEIS1, issue SEIS3 certificates to each investor. They cannot claim tax relief without this certificate.

Timeline: Typically 3-4 months from advance assurance to investors claiming relief.

Compliance requirements

Your company must maintain qualifying conditions for at least 3 years after investment.

You must notify HMRC within 60 days if:

• Investor ceases to be a qualifying investor
• Raised money will not be employed as required (must be spent within 3 years)
• Company ceases to be a qualifying company
• Company or connected person provides value to investor
• Any breach of scheme conditions

Clawback triggers

• Selling shares within 3 years: Income tax relief wholly or partly withdrawn (except sales to spouse/partner)
• Company ceasing to qualify: E.g., exceeds employee cap, loses qualifying trade status
• Funds not employed within 3 years: Must be spent on qualifying business activities
• Investor becoming employee: Without being a director

Penalties

• £100+ penalties for failing to notify HMRC within 60 days
• Additional penalties for fraudulent or negligent false information

SEIS before EIS: the graduation strategy

Many UK startups use SEIS as a stepping stone to EIS as they scale:

1. Seed stage (0-3 years): Raise SEIS (up to £250k) with 50% tax relief for angel investors
2. Growth stage (3-7 years): Graduate to EIS (up to £5m/year) with 30% tax relief from institutional investors
3. Scale stage (7+ years): Access non-equity funding or further EIS rounds

Important: You cannot raise SEIS and EIS on the same day - EIS must be raised at least one day after SEIS.

Research shows that companies approaching the £250,000 SEIS cap are the strongest predictors of graduating to EIS. SEIS helps you acquire startup capital, prove product viability, and attract further investment.

Why SEIS is attractive

• Higher tax relief: 50% vs 30% for EIS makes investment more compelling for angels
• Smaller amounts: Up to £250k suits very early stage where larger raises aren't feasible
• Faster decisions: Smaller companies mean less complex due diligence
• Proof of concept: Demonstrates traction before larger EIS raise