Accessing Funding

SEIS / EIS Advance Assurance: Don’t forget..

Don’t forget that you need the names and addresses of prospective investors when applying to HMRC for advance assurance that your company is a qualifying company for the purposes of issuing shares under EIS or SEIS.

Many founders are still unaware and can end up wasting valuable time as HMRC will reject the application immediately.

The problem for many entrepreneurs is that it’s a bit of a ‘chicken and egg’ situation – the investors will normally only express interest once the company has secured advance assurance from HMRC that it qualifies…

Per HMRC’s guidance:

If you’re applying for EIS or SEIS and your company:
– is raising money directly from investors: you must provide the name and address of any prospective investors
– is listed on the Alternative Investment Market (AIM) – you do not need to provide investor information
– plans to list on AIM – you must provide the name and registration number of the nominated adviser that supports its listing
– seeks investment through a fund manager or business promoter – you must provide evidence that they’ve agreed to act on your behalf and will continue to work with you
– seeks investment through a crowdfunding platform – you must provide evidence that they’ve accepted your proposal and will continue to work with you

https://www.gov.uk/guidance/venture-capital-schemes-apply-for-advance-assurance

How to Incorporate a UK company AND file for corporation tax and employee taxes (PAYE) all in one go

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Here’s a neat little tip for the formation of a UK company whilst filing with HMRC for company corporation tax and Pay as You Earn (PAYE) for you and your (future) employees all in one go.

This all-in-one registration service is offered by the UK Government online portal. All for the grand old price of just £12 at the time of recording. And yes, your company can be up and running within 24 hours. That’s tough to beat!

This is a service offered Gov.uk and it’s a service that not a lot of people seem to know about – especially judging by the low uptake per this press release dated 4 Jan 2019.

This quick and easy approach might not suit everyone. If you are unsure or especially if you have a complex case such as seeking funding e.g. via the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS), then you may wish to seek advice from a qualified accountant or lawyer.

You can access the Streamlined Company Registration Service via this link: https://www.gov.uk/limited-company-fo…

Launching our new course on the HMRC SEIS / EIS advance assurance

Delighted to have launched our new online step by step guide to preparing and filing an Advance Assurance Application to HMRC that your company qualifies under SEIS and / or EIS!

Really brought about by popular demand and to fill a gap where some companies simply don’t have the budget to take on a professional firm to carry out the preparation work and specific advice on advance assurance applications (although I am afraid this can never be a substitute for this).

The course has been called: The SEIS / EIS Advance Assurance DIY KitIt is really aimed at founders / entrepreneurs to give them a bit of a helping hand. The hope is that for 90% of applications, this might be enough and will therefore result in huge cost and time-savings all round.

As well as a 40 min run through the form and how to complete it, we’ve also chucked in a template of a letter that we use to supplement the standard (limited!) EIS/SEISAA Form. You can use this for your application too.

Some links to further resources rounds off what is hopefully a useful addition to the startup community.

You can access this new online tutorial course on completing your SEIS / EIS advance assurance form here.

SEIS / EIS: When it pays to be Ordinary!

I know it’s not cool to aim for being ‘ordinary’ and its not a label that you’ll want attached to your business but when it comes to your SEIS / EIS shares this is exactly the label you want – ordinary shares.

SEIS / EIS shares must be ordinary non-redeemable shares and carry no preferential rights to dividends or assets on a winding-up.

If you have institutional or other non SEIS / EIS investors then things can become more complex, if they say want preferential rights in relation to certain aspects of the business.

In this scenario, differing share classes would typically come into play with say ‘A’ shares for the founders, ‘B’ shares for VCs (both classes may have some preferential rights to varying degrees) and ‘C’ shares for SEIS / EIS investors – these being the ‘highest risk’ ordinary shares.

No one-size fits all but this gives you an idea. If you are going to go down the road of different share classes then bear in mind that this will require formal legal procedures to give effect plus amendments to the Articles of Association of the company (this goes beyond the scope of this course – get yourself a decent lawyer!).

This is a just one of a series of emails from our SEIS / EIS course – you can subscribe to the course below:

SEIS / EIS is on the rise!

Judging by the rapid uptake in the number of calls and enquiries we are receiving on a weekly basis from entrepreneurs and founders looking to ensure that their company is SEIS / EIS tax ready – I think it is fair to say that SEIS / EIS tax benefits are now getting the attention they deserve!

So if you are a star company looking for rapid growth and you’re in search of investment, then you really need to get up to speed with the tax benefits that SEIS / EIS government tax incentives can potentially bring you.

I’m afraid to say that it can be quite complex in parts – good news is that we’ve set up an email course to help you swot up!

You can access it here:

Not just SEIS has trading timelimits – EIS does too!

The requirement for a company to have a ‘new qualifying trade’ (i.e. trading for less than two years) in order to qualify under SEIS is now fairly well trodden ground.

Less well trodden is the new requirement for EIS qualifying companies to have commenced trading (had first commercial sale) within the past seven years (there is an extension to 10 years for knowledge intensive companies). This applies to EIS shares issued from 18 November 2015.

There are various potential exclusions to this rule, but particularly pernicious are the rules related to groups – what about this for an example:

Company E was incorporated on 1 February 2016. It used private investments to acquire the issued share capital of company F on 1 March 2016.

Company F was incorporated on 1 February 2014 to trade as a brewery. Its first commercial sale was made on 1 June 2014. On 1 March 2015 company F acquired a pub which had started to trade on 1 April 2005.

Company E’s first commercial sale was therefore on 1 April 2005 and it does not meet the basic age condition

Source HMRC

Seems fairly tenuous and serves to show just how careful companies will need to be in carrying out their due diligence regarding their qualifying status under EIS prior to issuing shares.

SEIS / EIS – A simple issue, yet often not easy…

It might be useful to revisit one crucial factor in planning for SEIS / EIS:

The issue of new ordinary shares in exchange for a cash investment.

Simple, right?

Then day-to-day reality steps in….

The shares are issued before the cash has cleared – oops!

The shares are issued way after the cash has cleared – oops!

HMRC could contend that in the first case the cash could never have been for the shares as they were issued before the cash cleared (two unrelated transactions, in their eyes) and in the latter case that it was a loan conversion – neither qualify.

What’s the solution?

Arrange so that the shares are issued on the same day as the cash clears in the company bank account. There can then be little argument over what the cash was for.

Simple; rarely easy!

This post is a sample from our SEIS / EIS training course that you can access by subscribing below:

Claim EIS income tax relief if you want a CGT free disposal

Should have claimed EIS income tax reliefThere’s been a recent sorry tale of an EIS investor who invested £50k for shares in a qualifying company under EIS. All seemingly went well and he sold his shares for – what he thought would be – a CGT free disposal.

But there was a problem…

He had failed to make a claim for income tax relief on his investment which is a requirement of the EIS relief – his reasoning was that he had little, if any, taxable income in the relevant period. He was denied the opportunity to file a late claim for income tax relief so his case was dismissed – with a full CGT liability…

So the moral of the story for EIS investors is to make a claim for income tax relief on investments even if the income tax saving might appear pitiful – because the CGT saving might not be ;)