The Government’s SEIS and EIS investment programmes offer investors generous tax breaks to invest in new businesses. They invest, you get the funding, and they get a tax break. It’s an immensely successful idea, with more than £23 billion raised for more than forty thousand companies since 1993. Here, we provide a guide to EIS and SEIS Investments.

What is the difference between EIS and SEIS?

The key difference between SEIS and EIS is that SEIS is explicitly targeted at start-ups and early-stage businesses, whereas EIS can be used by larger companies.

Seed Enterprise Investment Scheme; SEIS targets investment for early-stage companies – those with less than two years trading history and 25 employees. Individual investors (no companies) can invest up to £100,000 in an SEIS business per tax year. SEIS companies can accept no more than £150,000 SEIS funding total.

Enterprise Investment Scheme: EIS supports larger and more established businesses – those with up to seven years of trading history and 250 employees. Individual or corporate investors can invest up to £1 million per tax year. The company can accept up to £5 million per tax year and no more than £12 million in EIS funding total. Corporate investors in EIS do not receive tax relief on their investments.  

EIS has different criteria for Knowledge Intensive Companies (KIC) – which are typically those with high research/development costs and requirements. These companies can accept EIS funding within ten years of trading and may have up to 500 employees. They can also accept up to £10 million per tax year and up to £20 million EIS funding total.

Note: from April 2023 the amount a business can receive in SEIS funding is going up to £250,000, the amount an investor can contribute is going up to £200,000, and the maximum age of the business able to take advantage of the scheme is increasing from 2 yrs to 3 yrs.

Who is eligible?

Businesses wishing to participate in SEIS or EIS must meet the following criteria –

SEIS:

• Be new or trading for less than two years
• Be a qualifying trade or business (see more here)
• Be established in the UK
• Not trading on a recognised stock exchange at the time of the share issue
• Not be preparing to become a quoted company or a subsidiary of one at the time of the share issue
• Not be in control of another company unless that company is a qualifying subsidiary
• Not be controlled by another company since incorporation
• Not have gross assets over £200,000 when the shares are issued
• Not be a member of a partnership
• Have less than 25 full-time equivalent employees in total when the shares are issued.

EIS:

• Be new or trading for less than seven years, (ten for KIC)
• Be a qualifying trade or business (see more here)
• Be established in the UK
• Not trading on a recognised stock exchange at the time of the share issue
• Not be preparing to become a quoted company or a subsidiary of one at the time of the share issue
• Not be in control of another company unless that company is a qualifying subsidiary
• Not be controlled by another company or does not have more than 50% of its shares controlled by another company
• Not have gross assets over £15 million when the shares are issued
• Have less than 250 full-time equivalent employees in total when the shares are issued (500 employees for KIC).

Note: Businesses that have already received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust, cannot use SEIS.

How much can my business raise?

To qualify for tax relief, there are maximum investments companies can accept in SEIS or EIS:

• SEIS – up to £150,000 total
• EIS – £5 million in one year and up to £12 million total, or £20 million for KIC

What can the funds be used for?

SEIS and EIS have rules for the use of raised funds:

• SEIS – funds must be spent within three years of investment
• EIS – funds must be spent within two years of investment.

Funds must be spent on either:

• A qualifying trade
• Preparing to carry out a qualifying trade
• Research and development that’s expected to lead to a qualifying trade
• SEIS investments cannot be used to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity. EIS investments cannot be used to buy shares in any company.

We hope you have found this post on A Guide To EIS and SEIS Investments useful.  Should you have any questions, please do not hesitate to contact a member of the team here.