Through the Seed Enterprise Investment Scheme (SEIS), investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for any gains on the SEIS shares.
The Seed Enterprise Investment Scheme targets brand new companies, so the loss relief element shared with EIS is a huge advantage. For example, if you pay tax at 45% and make an investment of £10,000 that fails completely, you only lose £2,750 due to the tax relief.
That - alongside other benefits - is what makes SEIS so attractive to investors and why we encourage all entrepreneurs to seek advance assurance from HMRC that they are eligible.
Companies may qualify to raise funding through SEIS if they:
Are less than 2 years old
Have less than £200,000 in gross assets
Have less than 25 employees
To qualify, you must be a UK taxpayer at the time of investment.
Like EIS, there are two main restrictions to SEIS eligibility, both relating to whether you are connected to the company or become connected during the period of your investment. This applies for up to 2 years before and 3 years after the investment. This “connection” can take two forms:
1) Connection by financial interest
You are not eligible if you control the company or hold more than 30% of the share capital or voting rights. All relatives except siblings are included within these restrictions.
2) Connection by employment
If you are an employee or partner of the company, connected with it and therefore not eligible. The same goes for associates, including business partners, trustees and relatives.
Unlike EIS, SEIS guidelines do not consider directors as employed by the company. This means that if you are a director of the company you are investing in and are not connected by financial interest, you can still apply for SEIS relief.
For more information, please see the HMRC website.
As with our EIS tax relief examples, we’re going to keep the numbers straightforward and assume you invest £10,000, pay income tax at 45% and capital gains tax at 28%.
For clarity, all steps in the process are included here, including what goes on behind the scenes on the part of the company and HMRC:
Make sure that the company qualifies for SEIS. The company must fulfil the criteria above (“what companies may be SEIS eligible”). If the company is eligible, they will be listed as 'SEIS' on Crowdcube
Confirm the company has ‘Advance Assurance’. This is a certificate emailed to the investor by HMRC confirming that investors will benefit from SEIS. This isn’t a requirement, but it’s best practice to make sure.
Make the investment. The investment must be in ordinary shares worth no more than 30% of the company, bought in cash.
Wait to receive your SEIS3 form. The company will submit form SEIS1 to the Small Companies Enterprise Centre (SCEC) of HMRC. Once the SEIS1 has been reviewed and the requirements met, the SCEC will issue a form SEIS3 to the company, who passes it on to each investor.
If you are submitting your own tax filings, you don't need to send the SEIS certificate to HMRC along with your return - only if they request it.
If you aren't submitting your own tax filing, you need to complete pages 3&4 on the SEIS3 form and send them to the office that deals with your PAYE. You can find this information on any previous correspondence you may have received from HMRC. Your employer should also hold this information.
From: Four months after the business began trading.
Until: Five years after 31st January in the tax year after you made the investment. So, if you made the investment in the 2020 tax year, you can claim SEIS up to 31st January 2026.
The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.
Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowdcube is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest via Crowdcube once you are registered as sufficiently sophisticated. Please click here to read the full Risk Warning.
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