Investment

Can I raise funding under both the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS)?

Posted on January 16, 2014 by Steve Livingston Seed EIS 1

The quick answer is YES – you can raise funding under both SEIS and EIS but there are some important points to watch including:

If you wish to raise cash under both schemes, you must issue shares under SEIS before EIS. You can’t raise money and issue shares under EIS and then seek to raise money and issue under shares under SEIS after. It kinda makes sense but one to watch…
You can only follow on with an issue of shares to investors under EIS once you’ve spent at least 70% of the SEIS cash (no sniggering at the back!). This can raise some practical difficulties as the SEIS investment limit for the company is capped at £150,000 so you don’t want to be back out on the investment trail too soon. It is possible to raise the SEIS and EIS money jointly but to take great care in the issue, timing and other matters related to the shares and investors. *******
There are some other ‘funnies’ around timing of appointment to Director etc which can differ between the schemes among other things so you need to take care as you don’t want to jeopardise the EIS relief further down the line.

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

How to apply for advance assurance for SEIS / EIS

Posted on October 14, 2013 by Steve Livingston Accessing Funding 7

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]

A short overview of how to apply for advance assurance from HM Revenue & Customs that your company is a qualifying company for the purposes of raising funding under the Seed Enterprise (SEIS) or Enterprise Investment Scheme (EIS). [Update – the form looks different now and is an online form – check out our course for the latest version (Jan 2017)]

You can find the SEIS / EIS advance assurance application form here.

The process normally takes 30 days for HM Revenue & Customs to issue advance assurance or revert back with any questions.

You can seek specialist professional SEIS / EIS assistance here.

Crowdfunding: A useful tool for navigating sources

Posted on May 21, 2013 by Steve Livingston Raising investment 0

With a new crowdfunding platform emerging seemingly every week, it has become increasingly difficult to keep track of them – let alone their particular business model, approach and fee structure.

NESTA has released a timely online platform that provides a useful summary of the key features of the various crowdfunding platforms available right now.

There are some useful filtering tools plus some high level tips and additional information for founders seeking funding and potential investors. It may have been helpful for the site to list a little more info on SEIS / EIS funding opportunities given the extra kick starter this can provide for UK businesses.

Overall, I hope this site is maintained as it should prove to be a useful resource.

Click here to access the platform.
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Getting the most out of SEIS to fill the funding gap

Posted on November 1, 2012 by Steve Livingston Seed EIS 0

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.

Seed EIS (SEIS) – 10 need to know facts for UK start-ups

Posted on May 3, 2012 by Steve Livingston Accessing Funding Seed EIS 33

The introduction of Seed EIS (SEIS) is a major break-through for early stage companies seeking funding.

Here are 10 need to know (N2K!) facts for start-up founders on the new SEIS scheme:

SEIS allows investors in early stage companies to receive 50% income tax relief on investments up to £100,000 per year. So for every £1 invested, HM Revenue & Customs will refund 50p regardless of their rate of income tax!
SEIS investors will pay no capital gains tax on ultimate disposal of their shares so long as the company remains as a qualifying SEIS company for 3 years. So even if your business turns into tomorrow’s Facebook, the investors will not pay a penny in capital gains tax on ultimate exit!
There is an added bonus for investors between 6 April 2012 – 5 April 2013 in that they can reinvest any gains crystallised in the year and wipe out the gain completely – so say an individual sold a rental property in the year and realised a profit / gain of £100,000 they would normally be liable to pay up to £28,000 capital gains tax. However, they could reinvest this into a SEIS investment instead and receive 50% income tax relief plus eliminate the taxable gain entirely – this equates to a whopping 78% tax relief or, put another way, a 22p in the £1 investment cost…..!
Your company must have commenced trading within the past two years to qualify for Seed EIS – remember this is aimed at early stage companies only – and must be unquoted (AIM and PLUS listings count as unquoted for these purposes)
Companies are limited to raising a maximum of £150,000 under SEIS – after this, they may be eligible for SEIS’s Big Brother, EIS, provided 70% of the SEIS cash has been spent (…!)
To qualify for SEIS, companies must have less than 25 employees and gross assets of £200,000 or less (before the investment round).
Early indications were that SEIS would apply to loans to startups as well as subscription for shares but the rules as implemented restrict the relief to subscription for ordinary shares only.
There are material interest limits (30%), certain trades are excluded and there are a fair few stumbling blocks for the unwary as the rules largely mirror EIS.
You can obtain advance assurance on whether the company is a qualifying SEIS company from HMRC.
It applies from 6 April 2012. The legislation states that it will run for 5 years so to 5 April 2017 but hopefully it will be extended.

This is a great opportunity for start-up founders to access much needed capital at a time when traditional sources of bank and grant funding are thin on the ground.

Please drop me a line if you would like some assistance in navigating the SEIS or EIS rules either as a company founder or business angel investor.

Access our free webinar: SEIS / EIS: Navigating Traps for the Unwary

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EIS Funding Catch

Posted on November 22, 2011 by Steve Livingston Tax N2K 0

A key requirement of EIS (Enterprise Investment Scheme) relief is that the funds invested are ’employed’ within the investee business within the requisite time. The current requirement is that 100% of the funds must be invested within 2 years in the qualifying trade.

But how can a company ensure that it can demonstrate that it has fulfilled this requirement?

It is commonly advised that companies maintain a separate bank account for the EIS funds received. This way the company can maintain a record of both the timing and nature of the expenditure to which the EIS funds have been employed. There has never been a problem with EIS funds being used for working capital requirements – in fact, advisers have often recommended that funds be utilised for working capital requirements in priority to other funds if there was a risk that the funds might not otherwise be invested in time – however, a recent court case has added a layer of complexity to this commonly accepted advice.

The recent Skye Inns case was decided against the taxpayer on the grounds that a proportion of the funds was not invested within the required time limit. This was despite the fact that a separate bank account was maintained. The company was faced with a difficult decision in that a particular investment fell through shortly before the time limit for investment of the EIS funds was set to expire. The company therefore tried to argue that the funds had (largely) been utilised in servicing working capital demands instead. The appeal court decided, however, that the ongoing trading income of the investee business should be considered for servicing working capital in priority to any EIS funds. On this basis, HM Revenue & Customs won the appeal and the EIS relief was denied for the taxpayer.

It is key therefore that EIS subscription monies are earmarked in the relevant period for a specific current or future trading requirement rather than simply dipping into the EIS account, as necessary, and relying on a first in / first out (FIFO) basis to favour EIS funds over subsequent trading income. As ever, the paper trail will be key in ensuring that relief is not denied.

Call for more tax relief for angels (telegraph.co.uk)

7 tips for start-ups seeking VC funding

Posted on September 23, 2010 by Steve Livingston VC Funding 1

I’ve been reflecting on the key business learning points emerging from the BVCA’s excellent recent event Financing & funding the digital age held in Manchester on 16 September 2010.

It was a full day of fast moving panel discussions and keynote speeches that kept coming at a relentless pace until almost 6pm – plenty to chew over hence the delay in penning this summary.

There were so many ideas and tips to unpack that I’ve decided to run a series of posts covering different topics. First up is the comments made on VC funding.

BVCA Digital Age 1: 7 tips for start-ups seeking VC funding

Start building relationships with VCs who specialise and invest in your chosen sector NOW – don’t leave it until you need a cash investment.
Better communication is needed between both the VC and entrepreneurial community. There was much talk from tech entrepreneurs of the incredibly frustrating “long….slow…..No” from VCs (which was tacitly admitted by the VC panelists), however, there was sound advice in ensuring that you invest some time upfront to pick the right VC – this means studying each VC’s objectives for investment (does this fit with your business?), timeline for investment or where they are in the fund cycle (have they made any investments yet, and if so, any in businesses like yours?). This should save much time and frustration on both sides.
Business plans are largely a work of fiction (as things rarely pan out the way you planned them) so don’t go crazy building huge singing-all-dancing plans, however, you still need one to set out the investable opportunity for VCs to get an initial idea. The point was made (and reinforced by an excellent post and VC panellist Nic Brisbourne) that the act of sitting down and preparing a business plan helps entrepreneurs hunker down and concentrate on the business model – how is this great idea actually going to make me and my investors money? Sometimes reality strikes home when it comes to calculating the sales v costs etc. See points 6 & 7.
Concentrate on clearly defining the market need that your product or service will solve rather than how sexy your technology is.
Dawning of microfunding? Lower costs of entry for building new tech businesses brings into question how much cash investment entrepreneurs might need and when? Put another way, entrepreneurs might now be able to reach a much more advanced milestone in proving the business concept using just “family, friends and fools’ money” than would have been possible a few years ago – the point of inflexion has shifted along the timescale – so does this represent the dawning of microfunding and a move away from traditional VC seed funding and the timing of subsequent rounds of investment?
Merits of writing a business plan for startups seeking funding is best summed up by the comment: “Execution focuses the mind”.
Best of all, when you do approach VCs, present your business as “strategic opportunity” rather than a request for cash.

Making BrITain Great Again – Intellect launch Technology Manifesto

Posted on March 18, 2010 by Steve Livingston Tax N2K 0

Intellect launch their Making BrITain Great Again Technology Manifesto with a call for investment in supporting intellectual property rich (IP) technology companies in order, not only balance the books, but to rebuild a stronger UK business base for the future.

This technology manifesto identifies 4 types of technology business needing support and encouragement:

Early stage tech start-up – great idea but need support, encouragement and investment
Established technology companies – proven track record and growing
Leading IT companies – becoming world players
Global IT companies – already world players that we would like to see make the UK their home.

Key proposals that caught my eye in the 16 page report include:

simplifying the Enterprise Investment Scheme (EIS), including allowing entrepreneurs who participate directly in the running of the business to qualify for income tax relief – currently the legislation is designed to incentivise angel investors who are not the founders of the business to invest.
extending the Corporate Venturing Scheme from 20% to 30% tax relief in order to encourage investment by larger businesses into smaller tech companies. The manifesto points to the success of Silicon Valley investment by corporates into smaller businesses.
further simplifying the R&D tax credit regime to encourage further successful claims
careful monitoring of the UK corporation tax rate to encourage inward investment of overseas technology companies
‘tax holidays’ for cluster areas of technology companies within designated areas or business parks.

I welcome this report as further progress on a growing body of recommendations and manifestos (e.g. Ingenious Britain and the Conservatives Technology Manifesto all released within recent weeks) that seek to put technology and other advanced emerging sectors at the forefront of growth for Britain – even better, they seek to achieve this by rethinking tax incentives and support mechanisms for these high growth sectors.

Download the report here.

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