The Seed Enterprise Investment Scheme
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, or SEIS, is incredibly generous. Of course we all hope our investments do well, but 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’s what makes the Seed Enterprise Investment Scheme (SEIS) so attractive to investors and why we encourage all entrepreneurs to seek advance assurance from HMRC that they are eligible for SEIS.
Who can claim?
- The individual investor can be a director of the company, but not an employee
- An individual’s stake in the company can be no more than 30%
- SEIS tax relief applies only to recently incorporated companies
- The company must have 25 or less employees and gross assets of up to £200,000
- For 2012-2013 only, a CGT exemption will be offered in respect of gains realised on the disposal of assets that are invested through SEIS in the same year.
Examples
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%.
Carry Back
Did you know that you can carry back your SEIS tax relief back to the previous tax year?
An investor may elect under ITA07/S257AB(5) to have part or all of an issue of shares treated as though acquired in the tax year preceding that in which the shares were actually acquired. This is subject to the maximum annual investment limit for that earlier year (£100,000). The SEIS rate for the earlier year is then applied to the shares treated as acquired in the earlier year and relief given accordingly. As there is no SEIS rate for periods before 6 April 2012 an election under S257AB(5) will be effective only for shares acquired in 2013-14 and later tax years.
For further information please visit the HMRC website.
Things to remember
First of all, check that the pitch you’re interested in has got SEIS ‘advanced assurance’ – this is a certificate emailed to the investor by HMRC confirming that investors will benefit from SEIS.
Secondly, you can claim your money back once the business has been trading for a minimum of four months or has spent 70% of the investment they received.
Finally, and this is a big one, SEIS relief can be claimed up to five years after the 31st January in the year you made the investment.
How to claim
When the company you’ve invested in has been trading for four months or spent 70% of the total investment, the company must submit form SEIS1 to HMRC (or, more specifically, the Small Companies Enterprise Centre otherwise known as the SCEC).
Once SEIS1 has been reviewed and the requirements met, the SCEC will issue a copy of form SEIS3 for every investor. These are sent to the company and they can be passed on to each investor for them to complete and submit as part of their tax return.
Please note:
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.
Please visit the HMRC website for further information on SEIS tax relief.
