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SEIS / EIS relief for directors of newco?

unsure about the rules re directors ...

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I remember being told on a tax course about some guys starting a tech company and they had successfully applied for SEIS/EIS (I forget which) their £1 subscription. At least I think that is correct. I'm trying to see whether the directors of my tech startup client can do similar.

The co was incorporated in Aug 19 with director 1 owning 1 x £1 share at par. The company basically didn't do anything until Nov 19, when there was a friends & family investment round of c£75k. Director 1 invested another £30k, (new) director 2 invested £15k and went on the payroll as a working director, (new) director 3 invested £10k and went on the payroll as a working director and various friends & family invested the rest. To slightly complicate things further, D1 (founder) is the father of D3. It was always going to be D3's company, he was in a restrictive covenant but wanted to snap up the company name so used his dad to do so. D3 is the CEO. D2 is the CTO. If D1 wasn't the 'founder' and father of D3, he'd fit the EIs definition of Business Angel - significant 'if', but gives you his involvement.

In Mar 20, we successfully applied for EIS AA for about £300k of investment (outside investors) which was received in 3 tranches Apr 20 - Apr 21.

The investment made by the friends and some of the family members I believe would be an allowable investment, but given that the application would be made now (after £300k EIS investment received), would we still be able to claim it as SEIS given that it was the first round of investment?

Having ready HMRC's manual on both SEIS and EIS, I think that director 1 would've been allowed relief as a business angel, but as the father of director 3, relief would be denied. I'm a little unsure about the 2 working directors D2 & D3, but think they'd get relief under SEIS but not EIS? But then in the EIS manual is spoke about them not having had a relationship with the company prior to investment - does D3 break this by his father (D1) being the sole director/shareholder at that point?

So 2 questions really:

1. First round of investment would presumably be able to be under SEIS despite being claimed after a round of EIS?

2. Which if any, of the directors can get SEIS/EIS relief? 

Thanks

 

 

Replies (4)

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By nrw
21st Jun 2021 09:33

1) SEIS cannot be claimed for a share subscription made at a later date than an EIS share subscription in the same company.

2) It sounds like neither D1 nor D3 (by father/son association - it just takes one of them to be non-qualifying to blow it up for the other) qualify for EIS on a number levels including ownership >30%, worked in the business, subscribed for non-EIS shares prior to EIS shares - though you don't provide enough information to fully determine this.

HMRC's manuals are comprehensive and clear around most areas of S/EIS.

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Replying to nrw:
ALISK
By atleastisoundknowledgable...
21st Jun 2021 09:47

nrw wrote:

1) SEIS cannot be claimed for a share subscription made at a later date than an EIS share subscription in the same company.

The shares in questions were subscribed for and allotted prior to the EIS investment, they just haven't been classified as SEIS investments. My question is, can they be?

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Replying to atleastisoundknowledgable...:
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By nrw
21st Jun 2021 09:53

atleastisoundknowledgable... wrote:

The shares in questions were subscribed for and allotted prior to the EIS investment, they just haven't been classified as SEIS investments. My question is, can they be?

An S/EIS claim can be made up to 5 years from Jan 31 following the end of the tax year in which the subscription was made, from memory. The order of the claim shouldn't matter, it's the order of the share subscriptions which is relevant.

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Replying to nrw:
ALISK
By atleastisoundknowledgable...
21st Jun 2021 10:08

I thought that would be the case, many thanks,.

So that brings me to who can claim ...
Friends/non-vertical family : yes
D1 : no (substantial shareholding)
D2: yes? he became a director on investment and on the payroll the following month
D3 no (son of D1)

Do you think the above is right?

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