A really common question, so I thought I’d throw up a quick tutorial to share the answer.
Hope this helps!
(This course might help too :))
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 Kit. It 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.
So you have managed to secure advance assurance from HMRC that your company is a qualifying company for the purposes of raising funding under Seed EIS and / or EIS. Congratulations!
You may now be the one of many Founders who fall into the "What now?" mode of thinking...
This perfectly understandable as the journey is just beginning for you and your company under the strict (yet often complex) requirements of the SEIS and EIS tax rules
Here we share some tips that you might like to take into account as you seek to issue shares to your business angels in return for this tax advantaged funding:
Understand your obligations to your investors. Take professional advice particularly in relation to your offer document and any shareholders agreement. It is fresh issues of shares only that qualify under SEIS & EIS. Also, remember your obligations extend for at least three years beyond the issue of the SEIS / EIS shares to your investors
No Founder should be without a detailed spreadsheet share cap table with each step mapped out from the Founder (subscriber) share issues and then for each round thereafter (SEIS, EIS and onwards). This allows the Founder to keep track of respective valuations, % shareholdings, notional options pools and to observe dilutions at each stage
That order ONLY. So if you are planning on fundraising for both (and you have advance assurance for both) ensure that you allow at least ONE day to pass between the issue of the SEIS shares and the EIS shares thereafter
A ‘nice to have’ problem that many Founders would be envious of (!) but make sure that any share subscriptions from investors do not breach the ‘gross assets’ test at the time of the share issue. More likely to be a problem under SEIS with its lower £200k gross assets limit
This is where your nifty spreadsheet will come into play. Make sure that % shareholdings are shown and that no SEIS / EIS investors ever exceed 30%. Watch out for “associates” whose shareholdings will be aggregated e.g. spouses, parents, grand- parents, children, grand-children (brothers & sisters are okay)
Rather than settle for just 5 tips, we thought we would round it up to 10 and deliver it in a downloadable one-page PDF. You can access it for free by following the link below
Note that this article was originally posted at ip tax solutions
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.
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:
Imagine you are setting up a software development company. Perhaps you plan on generating revenues using a Software as a Service (‘SaaS’) business model: charging users a licence fee to access the service via the cloud.
You need funding and are considering the benefits of Seed Enterprise Investment Scheme (SEIS) or Enterprise Investment Scheme (EIS) to help attract funding for your tech startup. It is always good practice to seek advance approval from HM Revenue & Customs that your company is a qualifying company for the purposes of raising money under either or both of these UK Government tax incentives.
One of the key points to consider as part of this advance planning process is whether your company will be carrying out a qualifying trade for the purposes of these tax reliefs? This is not always so obvious – software companies being a case in point.
Note that the trade of ‘receiving licence or royalty fee’ income is of itself an excluded activity i.e. does not qualify, under either scheme. However, there is an exemption from this restriction where the company creates the whole, or greater part, of the underlying intellectual property that goes on to generate the licence or royalty income. Cue – breathe a huge sigh of relief!
Matters are not so straightforward, however, in situations where intellectual property is acquired from another company and that transferor company has already monetised the IP and received licence fee income in relation to it. At what stage will you have created the whole (doubtful) or greater part of the underlying IP and so qualify for SEIS / EIS?
* I should clarify that the above considerations are not exclusive to software companies – it is simply the most common scenario that I have encountered in practice.
HOT OFF THE PRESS: We’ve just launched a brand new online course that shows you exactly how to complete and file your SEIS / EIS advance assurance application with HMRC. We walk you through every stage of filling out the form plus share some additional resources to help ensure a smoother passage through HMRC. Access it by clicking here. [Use the code: SEISAA2017 to get 50% off in January]
Having prepared and filed too many SEIS / EIS advance assurance applications to mention (!), here are a few pointers to consider if you would like your company to attract more investors via this attractive tax relief and would like to understand more about the advance assurance process:
1. Don’t leave it too late! HM Revenue & Customs (HMRC) are generally pretty good in turning around applications within 30 days but it can peak to 6 weeks around key tax deadlines e.g. 31 Jan self assessment tax return filing date and 5 April end of personal tax year.
2. Use the form that HMRC provide for you but you may wish to accompany with a letter as there’s not much room to disclose any additional matters that might be relevant. Don’t forget, this is a tax clearance document and therefore HMRC will reserve the right to withdraw an approval if it later transpires that you didn’t disclose all of the facts.
3. The advance assurance application process is not mandatory but is well advised for two principal reasons: i) most investors will insist on evidence HMRC approval for their own peace of mind before parting with their investment cheque and ii) it gets you onto HMRC’s radar for the second stage which is to complete and file forms SEIS1 / EIS1 which is necessary for the investors to be able to claim the tax relief (if you haven’t applied for advance assurance, HMRC generally ask all of the sorts of questions that would have been covered in the advance assurance application in any case).
4. If you foresee that you will be seeking to raise EIS money after a SEIS round then apply for both within a single advance assurance application.
5. Take care if you are a software company and will be generating revenues from licence fee income (as most will). You will be relying on a carve-out from an otherwise non-qualifying ‘excluded activity’ – in receiving royalty or licence fee income – which states that you can qualify as a SEIS / EIS company if the whole, or greater part, of the underlying intellectual property that generates the revenues is created by your company.
The quick answer is YES – you can raise funding under both SEIS and EIS but there are some important points to watch including:
Drop me a line if you need any help either via the contact page or on Twitter (@stevelivingston) or via my specialist tax advisory firm, ip tax solutions.
******* Note that this 70% rule has been abolished for share issues post 5 April 2015
I am getting a lot of questions at the moment about the process for raising funding under Seed EIS and where the advance assurance fits in?
The Advance Assurance is a mechanism that allows companies to pre-qualify themselves with HM Revenue & Customs (HMRC) as a qualifying company for the purposes of raising funding under SEIS. It is not obligatory – although it is good practice. Most sophisticated investors will insist that the company has received advance assurance from HMRC of its qualifying status before investing as do many of the crowd-funding sites.
The other factor to take into account in deciding whether or not to seek advance assurance is that when you get to the stage of filing your SEIS compliance statement with HMRC (in order to secure the tax certification for the investors to allow them to claim their SEIS tax relief), if you haven’t already filed an advance assurance, the likelihood is that you will have to answer a series of questions from HMRC regarding the company’s qualifying status much like you would have completed at the time of the advance assurance – so you may as well have gone for it in any case and got yourself on HMRC’s radar as well as gaining comfort for the investors from the outset!
The process for seeking advance assurance is to use HMRC’s own SEIS advance assurance application form. If your facts are particularly complex or you would like assurance in relation to certain aspects then I tend to supplement the form with a letter to ensure that I have disclosed all of the relevant facts – so there is no come-back further down the line…
If you would like any assistance in relation to the Seed EIS advance assurance process then you can drop me a line here or at my specialist advisory firm, ip tax solutions.
A short 5 min overview of the Seed EIS tax incentive and need to know facts and tips for startup founders.
Remember, SEIS requires a subscription for shares – loans do not work.
Look forward to your feedback and experience of using the scheme in the comments section below.