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Form SEIS 1: The basics

22nd Nov 2012
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Last month HMRC published SEIS 1 - a form which companies must use to apply for formal approval before investors can claim tax relief. 

The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance of up to £150,000 by offering tax relief to investors who buy new shares in the companies.  

It was created to complement the existing Enterprise Investment Scheme (EIS), which is seen as the next stepping stone after SEIS. 

SEIS offers a higher rate of tax relief than EIS and is geared towards companies trying to attract investment, from, for example, outside investors. 

Gabelle recently published a digest of HMRC's SEIS guidance notes. 

Director Martin Mann warned companies using the scheme must read into the finer detail, which the notes don't go into, as the contracts are lengthy and complex.

"The important thing to remember is that there are various traps you could fall into and it's not that easy to navigate yet. You are locked into it for a three-year period and there is scope for someone to come in and unravel the whole thing," he said. 

Here are some of the key points of the scheme:

Tax reliefs available 

  • Available to investors in a company that meet SEIS requirements
  • Entitled to 50% tax relief (as opposed to EIS' 30%)
  • CGT free: Assets sold during 2012/2013 as long as they are reinvested into SEIS qualifying company the same year 
  • CGT free: Shares held for three years in SEIS qualifying company, all conditions met and income relief claimed, shares will be exempt from CGT when sold
  • Must be for a UK tax liability but investor doesn't have to be UK resident 
  • Carry-back facility means all or part of the cost of shares acquired in tax year after 2013 to be treated as if they were acquired the year before

Mann said a point which differentiated from EIS was that of the ease of director investment. 

"An interesting point about SEIS is that any directors can invest with ease, but with EIS there are a set of rules to adhere to," he said.

In order to receive tax relief, the investor must first get a compliance certificate from the qualifying company. This can only be issued when 70% of investment funds have been spent and trade has been ongoing for more than four months.

Qualifying shares 

  • Must be subscribed for wholly in cash
  • Issued fully paid 
  • Issued on/after 6 April 2012 to 6 April 2017
  • Issued for the purpose of raising money for a qualifying company activity carried on by the comapny or a qualifying 90% subsidiary
  • All money raised by share issue must be spent for a qualifying business activity
  • Shares may carry preferential rights to dividends but may not carry preferential rights to the company's assets if it ever wound up

If shares are issued on the incorporation of the company they are unlikely to be paid up. Therefore issue shares when incorporation has been made and company can be paid.

Qualifying companies 

  • Must be UK resident 
  • Must engage less than 25 full-time employees
  • Must have no more than £200,000 in assets
  • From date of incorporation to three years after share issues cannot be under the control of another company 
  • Must exist wholly for the purpose of carrying on one or more new qualifying trade
  • Must be unquoted

Qualifying investors

  • Must be an individual 
  • Can't have a substantial interest in the company 
  • Investment must be made for genuine commercial reasons
  • Brothers and sisters are not treated as associates for SEIS purposes, but other family members are

Despite the "disappointedly low" investment limits, said Gabelle, SEIS will secure vital funds for businesses in the early stages which might not be available from a bank.


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