EIS or SEIS: What is the difference?
The Seed Enterprise Investment Scheme (SEIS) and its big brother the Enterprise Investment Scheme (EIS) have quite a few similarities but it is also important to understand the differences and how they work with each other.
If you are looking to raise money for your company from outside investors, you may be able to make the deal more attractive by offering the benefit of EIS or SEIS relief. As an investor, it is worth getting to know these two reliefs in some detail.
HMRC describe EIS as being designed so that your company can raise money to help grow your business whereas SEIS is targeted at the smaller company when it’s starting to trade.
SEIS relief is more generous than EIS to reflect the additional risks that these investments carry.
In both cases the trade must be in the UK, there are restrictions on the types of trades that qualify, and the company cannot be in financial difficulties or receiving state aid. As well as directly using the money in its trade, it is possible for a company to raise money to use in preparing to trade and for qualifying R&D (which can also take place before the trade is actually commenced).
Investors cannot have had a previous connection with the trade or the company and cannot be or become an employee, although there is some scope for directors (SEIS) or to come in as a ‘business angel’ (EIS).
Summary of the differences
|Maximum age of the trade when the first round of EIS/SEIS funding is raised||7 years||2 years|
|Maximum gross assets before the shares are issued||£15,000,000||£200,000|
|Maximum gross assets after the shares are issued||£16,000,000||n/a|
|Maximum number of employees (FTE)||250||25|
|Annual limit on amount that can be raised||£5,000,000||£150,000|
|Lifetime limit on amount that can be raised||£12,000,000||£150,000|
|Time limit for the company to spend the money raised||2 years||3 years|
|Earliest that an application can be made to HMRC||After the company has been trading for 4 months||After 70% of the money raised has been employed in the trade|
Companies raising money under both schemes
A company that has raised EIS money is not able to issue any SEIS shares. Conversely, a company that has issued SEIS shares can go on to issue EIS shares, provided the two share issues are not on the same day and care is taken to ensure that certain further conditions are met as regards the issue of the shares and the employment of the money raised.
|Income tax relief||30%||50%|
|CGT on the investment itself||Exempt||Exempt|
|‘Roll over’ of other gains||Straight deferral||Conditional exemption on 50%|
|IHT treatment||Exempt as ‘business property’||Exempt as ‘business property’|
|Maximum investment pa||£1,000,000||£100,000|
|Maximum permitted shareholding||30%||30%|
These two reliefs can be very useful to companies looking to raise money from investors, and equally for individuals looking to make these investments. This article covers the key distinctions between the regimes, but this is a notoriously tricky area of the tax code that really does need bespoke advice.