Getting the most out of SEIS to fill the funding gap

The Seed Enterprise Investment Scheme (SEIS) provides an excellent opportunity for early stage fast growth companies to access funding from founders, family, friends and business angels.

In essence it rewards investors by allowing them to reclaim income tax at a rate of 50% of their investment under the scheme (limited to £100,000 investment per tax year) plus a potential capital gains tax free disposal after three years.

But such a generous tax break comes with (many!) terms and conditions….

Common areas where there seems to be much head-scratching is around the limit for the SEIS investment into the company of £150,000 in total; the limit of £200,000 or less gross assets and the 30% connection test. Note these are just a few of the conditions!

Given the above, how can founders make the most of this SEIS tax break whilst getting the funding they need?

Try to spread the £150,000 total investment between investors / founders to avoid breaching the 30% connection test e.g four individuals with 25% each can work well
Remember the test for the £200,000 gross assets is applied immediately before the issue of the SEIS shares – so you could seek external (non-SEIS) investment top-up funding afterwards. Note that EIS funding is only available once 70% of the SEIS funding has been spent.
Investor(s) could invest an amount as a subscription for SEIS shares up to 30% of the share capital and then loan the remainder.
Investor(s) could invest further amounts in a company by subscribing for less shares but with the remainder being credited to share premium e.g. if an investor / director already holds 29% of the ordinary share capital they could invest a further sum (subject to the SEIS limits) for a further 1% of the ordinary share capital with the remainder posted to share premium.

These are just a handful of examples based on recent experience of advising fast growth companies and investors – as always there are many ways to skin a cat but it is important to review all options to make the most of the UK SEIS and EIS tax reliefs.