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Do you know your SEIS from your EIS?

Here’s what you need to know.

Finding investment funds for your business is a top priority when starting out or looking to grow. A good place to begin when you need business finance is by looking at HMRC’s Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).
But what are they? And do you even qualify? Read on to find out if this type of business funding is right for you.

What are SEIS and EIS?

The SEIS and EIS are HMRC’s venture capital schemes and – if you’re an unlisted company with permanent establishment in the UK – you might just qualify for business funding in this way. These schemes are designed to encourage investors to offer start-up funding or small business funding to SMEs by giving them a sizeable tax break.

Here we take a closer look at how you could – and whether you could – benefit from these special investment funds for business.

SEIS: the lowdown

In return for investment funding for businesses – whether small and growing or recently started up – the SEIS offers tempting tax efficiency benefits to investors.

It can be a great place to start when looking for investment funds for your business. But will you qualify? If you’re considering the SEIS as a business funding option, ask yourself the following questions:

  • Have I been trading as a company for under two years?
  • Do I have fewer than 25 employees?
  • Do I have no more than £200k in gross assets?
  • Have I had no previous investment through EIS or Venture Capital Trust?

If you can answer ‘yes’ to all of these questions, you might just have uncovered a small business funding goldmine! The SEIS allows you to receive small business funding of up to £150,000, which can come from several different investors.

Your investors will receive a tax break of 50%, so it’s win/win all round.

Don’t forget when answering the questions, that ‘trading’ starts the day you make your first commercial sale, not the date you register your business. It’s an important one to remember when looking into venture capital schemes as a way of business funding.

EIS: what’s the difference?

The EIS is a great way of raising business funding if you are a small, higher-risk company. It offers tax relief to investors who purchase shares in your business.

With a total maximum investment value of £12 million which can come from multiple investors, it’s definitely an option to be considered when looking at your business finance options. Your investors get a tax relief of 30%, so again the EIS is an excellent business funding option all round.

There are a few conditions though. There is a cap of £5 million on the amount of investment funding you can raise for your business in a 12-month period. And you have to be able to answer ‘yes’ to the following questions to qualify to receive this type of investment funds for your business:

  • Do you have no more than £15 million in gross assets?
  • Do you have fewer than 250 employees?
  • Was your business’ first commercial sale less than seven years ago?

There is an exception, in that if you’re a knowledge-intensive business, you can extend the EIS for a further three years, so this business funding option will remain open to you for longer. A knowledge-intensive business is one that:

  • spends a certain proportion of its operating costs on R&D or innovation (at least 10% of total operating costs in each of the three years prior to the EIS investment)
  • spends at least 15% of its operating costs on R&D or innovation in one of the three years.

Both of these schemes can be incredibly helpful for businesses seeking startup funding or investment funds for a business that is young and growing. It is important to remember that investors have to keep their investment funds in your business for a minimum of three years, and that their investment must be spent within the three-year period on the qualified trade. It cannot be used to invest in other companies.

If you’re thinking of trying to access investment funds for your business in this way, you might like to consider applying for pre-clearance or Advanced Assurance as investors will be more attracted to you if you have this. You may also wish to have a closer look at the criteria for SEIS and EIS here.

Of course, Swoop is also more than happy to help you get registered for the SEIS or EIS, and we can help you to find the SEIS or EIS business finance you need. We can have you ready to wow potential investors in no time.

What’s in it for investors?

When looking to offer investment funds for businesses, an investor will not only receive their 50% or 30% tax break, but they will also receive the following benefits:

  • No capital gains tax to pay on profits
  • They can claim loss relief against income tax
  • They will not pay inheritance taxes.

They do, however, still have to pay capital gains tax on any dividends received. And they can only invest up to £100,000 in a 12-month period through SEIS and £1 million through EIS.

What next?

Whatever your funding requirement is, and whatever stage you’re at, our team would be delighted to offer you some free advice on your options.

Just drop us an email at hello@swoopfunding.com or register your business here.

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