Putting the right structure in place so that investors can maximise the tax reliefs available through schemes such as the Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT) can be a key factor for companies in attracting investment. Additionally, in some circumstances, owner-managers can benefit from tax reliefs under SEIS/EIS by investing in their own companies.
Access to venture capital schemes expertise can be vitally important if the business is looking to raise external finance, as investing under these schemes can provide generous income tax, capital gains tax and inheritance tax reliefs for individual investors. The rules are highly complex for both investee companies and investors. Our dedicated advisers are on hand to provide their knowledge and experience.
Meeting your needs
You will have direct access to highly qualified, leading industry experts with the skills and experience to advise successfully on all tax aspects of the venture capital schemes, to help your business achieve its goals.
Our venture capital schemes tax specialists use their expertise and in-depth knowledge to assist in a variety of areas including business structuring and HMRC approvals and offer bespoke innovative solutions.
You will get a personal service tailored to the precise needs of your business. We invest our time in getting to know your business, including understanding its history, objectives and fundraising requirements.
How we can help
- Structuring: working with you and your investors to plan and structure investment under the venture capital schemes, including advising on the structure of groups and identifying particular areas of risk
- Advising: providing ongoing advice and assistance in relation to qualifying and disqualifying conditions, up-to-date rule changes, eligibility criteria and external fundraising strategies
- Applying for advance assurance: preparing and submitting advanced assurance applications to obtain HMRC clearance that a company meets the relevant qualifying criteria and dealing with HMRC queries when required
- Opinions: providing professional opinions on the company eligibility for venture capital schemes in relation to proposed investments
- Compliance: preparing and submitting compliance statements and completing investor certificates to allow individuals to claim their tax relief
- Ongoing monitoring: reviewing qualifying conditions on an ongoing basis, particularly those resulting from changes in group structure or activities, and HMRC rule changes
- HMRC liaison: liaising with HMRC in respect of a company’s eligibility and corresponding with HMRC on technical points
- One off advice: providing specialist SEIS, EIS and VCT advice to owner-managers and external investors in relation to proposed investments
Our team has extensive experience in advising both companies and investors on their eligibility under the venture capital schemes. We advise on tax matters in relation to investments by private individuals, by approved and unapproved SEIS and EIS funds and by VCTs.
Many of our clients have been with us for a long time through the different phases of the business lifecycle. We frequently work with businesses from incorporation through various stages of growth and development, often achieved through external fundraising, to an eventual exit.
We have a leading reputation in this area and are regularly asked to comment and provide specialist insight on the venture capital schemes and proposed changes to them both by tax authorities and at industry events.
Frequently asked questions about EIS, SEIS and VCT
What is the difference between SEIS and EIS?
SEIS and EIS follow the same broad principles and qualifying conditions for investors and companies but SEIS is targeted at smaller, start-up companies. For example, an SEIS qualifying company must have gross assets of less than £350,000 (previously £200,000 prior to 6 April 2023) and fewer than 25 employees at the time of investment. For EIS, the gross assets limit on a group basis is £15 million immediately before the relevant investment, and £16 million immediately after the investment, and up to 250 employees at the time of the relevant investment (or 500 employees for a knowledge-intensive company).
A company must have been trading for less than three years (previously two years prior to 6 April 2023) to qualify for SEIS investment. For EIS, there is an initial investing period of seven years from the date of the company’s or group’s first commercial sale, or ten years for a knowledge intensive company or group within which the first relevant qualifying investment must be made.
Upfront income tax relief for individuals of 50% of the amount invested is available under SEIS, and 30% tax relief is available under EIS. The relief is given as a credit against the investor’s income tax liability for the relevant year(s).
Can you carry back SEIS and EIS relief?
SEIS and EIS income tax relief against an individual’s income tax liability can be carried back one tax year.
Can you apply for SEIS and EIS at the same time?
A company can apply for advance assurance in respect of SEIS and EIS at the same time. In situations where one qualifying fundraising is expected to take place, the first £250,000 (previously £150,000 prior to 6 April 2023) can be raised under SEIS with the balance qualifying for EIS assuming all relevant conditions are satisfied. The SEIS shares must be issued on an earlier date than the EIS shares.
How much can you invest under SEIS?
An individual can invest up to £200,000 (previously £100,000 prior to 6 April 2023) in one or more SEIS-qualifying companies in each tax year, with the option to carry back one tax year if there is spare capacity. A company can raise up to £250,000 (previously £150,000 prior to 6 April 2023) under SEIS. A company cannot issue SEIS shares after EIS shares have been issued.
How much can you invest under EIS?
An individual can invest up to £1 million in one or more EIS qualifying companies in each tax year or up to £2 million if at least £1 million is invested in knowledge-intensive companies, with the availability to carry back one tax year if there is spare capacity. A company can raise up to £5 million in aggregate under the venture capital schemes representing SEIS, EIS and VCT investment in any rolling 12-month period. This annual limit is increased to £10 million if the company is a knowledge-intensive company.
A company can raise up to a lifetime limit of £12 million under venture capital schemes including SEIS, EIS and VCT. This lifetime limit is increased to £20 million if the company is a knowledge-intensive company.
How do I claim EIS tax relief?
Once the qualifying shares have been issued to the relevant individuals, a formal claim must be submitted to HMRC in an EIS 1 form containing the relevant share issue details and qualifying investor information.
On the basis that a formal claim is accepted, HMRC will then issue an EIS 2 authority for the share issue including a unique investment reference with EIS 3 certificates, which can be completed and passed on to the relevant individuals. These individuals can claim tax relief via their self-assessment tax return once in possession of the EIS 3 certificates.
How does SEIS/EIS CGT relief work?
The disposal of EIS qualifying shares will be exempt from CGT if they are held for the minimum relevant three year period, and all qualifying conditions are satisfied by the company and the investor. In addition, the tax payable or part of it on other gains can be deferred by reinvesting the part or all of the gain in EIS qualifying shares, usually until the EIS shares are disposed of. If the relevant EIS shares were sold at a loss, the capital loss less the upfront income tax relief already given and not withdrawn would be available to offset against taxable income in the current or prior tax years.
Similarly, the disposal of SEIS shares will be exempt from CGT if they are held for the minimum relevant three year period, and all qualifying conditions are satisfied by the company and the investor. There is no CGT deferral relief under SEIS, but up to half of the gains arising on the disposal of other assets can be permanently exempted from CGT if all or part of the relevant gain is reinvested in one or more SEIS companies. Loss relief is similarly available as appropriate for SEIS investments.
The SEIS/EIS qualifying shareholding should also attract business property relief at 100% for inheritance tax purposes after a period of two years’ ownership.
Can overseas companies qualify for investment under the venture capital schemes?
The relevant company must have a UK fixed place of business in order to satisfy the ‘permanent establishment in the UK’ condition. If the relevant company is not incorporated in the UK, this condition can be satisfied through the establishment of a UK branch of the overseas company at Companies House. It is therefore possible for overseas companies to qualify for investment under the venture capital schemes.
Can directors qualify for tax relief?
An individual who is a director of the company cannot qualify for EIS income tax relief except in limited circumstances. However, directors can qualify for SEIS relief. Employees who are not directors of the relevant company or its subsidiaries cannot qualify for SEIS or EIS relief under any circumstances.
Can listed companies qualify for investment under the venture capital schemes?
A listed company cannot qualify under the venture capital schemes. The company must be unquoted. This includes AIM listed companies.