SEIS vs EIS Schemes
Which scheme should I apply for?
Now that you’ve set up your company, you’re currently busy working on your products and services and attracting new customers. To gain further traction, you might be thinking about potential investors who are willing to promote your business. However, at the same time, you’re concerned about the risks in investing in early-stage companies. Don’t worry, various investment incentives will help mitigate these issues. The main investment schemes to be discussed in this article are the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
Differences
It’s important for SMEs to understand that SEIS and EIS are different. SEIS is aimed at seed companies that are in the very early stages of the business, whereas EIS applies to established companies. The table here shows the key differences explained further.
A director/individual can’t hold SEIS/EIS shares if they’re connected to the company (i.e. holding 30% or more shares or voting
What do investors need to know?
Although both EIS and SEIS provide a number of tax advantages to investors, it’s crucial for them to understand the reliefs they can claim. The table below is a comparative overview of reliefs available.
What happens if my company exceeds the EIS timeframe?
Just because you’re outside the EIS timeframe of 7 to 10 years, that doesn’t mean that you are ineligible to apply. HMRC have provided the exceptions below if your company falls outside the EIS age limit.
Condition A: Follow-on funding
Where your company received its first SEIS/EIS investment before the end of the initial investment period, Condition A allows for investment as a follow-on funding. To qualify under this condition, the company needs to prove that the funding will be used for the same business activity as the first investment and satisfy that the additional follow-on funding was foreseen at the time of the initial investment.
Condition B: Investment to enter a new product or geographic market
Condition B applies to companies that have never had received SEIS/EIS investment in the past. As the name suggests, the funding must be used to enter a new product or geographic market. The aim is to help companies enter a new growth phase, and so the company must satisfy that the amount of relevant investment must be at least 50% of the company’s average annual turnover, averaged over the last five years.
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