In the Finance Act 2012 the government introduced a new tax advantaged venture capital scheme called the Seed Enterprise Investment Scheme (SEIS).
Qualifying investments will attract income tax relief at 50% on the lower of £100,000 and the amount of the qualifying investments made during the tax year for investments made between 6 April 2012 and 6 April 2017.
There are qualifying conditions as follows:
- The maximum that can be raised under this scheme is £150,000.
- The investee company must have been incorporated no more than two years before the SEIS shares are issued.
- The company must have fewer than 25 employees and assets up to £200,000.
- The company must not have had any investment from a Venture Capital Trust (VCT), or issued any shares in respect of which it has submitted an EIS compliance statement
- Within 3 years of the date of the relevant share issue, all the monies raised by that issue must be spent for the purposes of a qualifying business activity, carried on either by the issuing company or by a 90% subsidiary. If this condition is not met, investors will lose their tax relief.
- The payment of dividends to shareholders is not regarded as being for the purposes of a qualifying business activity.
- There are also provisions for the withdrawal of SEIS relief in certain circumstances, such as where the shares are sold within three years of issue.
- A qualifying trade is one which is conducted on a commercial basis with a view to the realisation of profit.
- Most trades qualify, but some do not. A trade does not qualify if it consists wholly, or substantially, of ‘excluded activities’. A separate list of ‘excluded activities’ are available.
- Shares must be paid up in full, and in cash, when they are issued.
- Shares must be full-risk ordinary shares, and may not be redeemable or carry preferential rights to the company’s assets in the event of a winding up.
- You have subscribed for shares which have been issued to you and which at the time of issue were fully paid for. You may subscribe via a nominee.
- You do not have a ‘substantial interest’ in the company, at any time from date of incorporation of the company to the third anniversary of the date of issue of the shares. ‘Substantial interest’ is defined as owning more than 30 per cent of the company’s issued share capital, or of its voting rights, or of the rights to its assets in a winding up. Shareholdings of associates are taken into account in arriving at the 30 per cent figure. ‘Associates’ include business partners, trustees of any settlement of which the investor is a settlor or beneficiary, and relatives. Relatives for this purpose are spouses and civil partners, parents and grandparents, children and grandchildren.
- Brothers and sisters are not counted as associates for SEIS purposes.
- It does not permit employees of the company to claim SEIS relief, but there is a specific exception for directors who are not considered employees and do not receive remuneration.