As a start-up company, it is often difficult to raise funds in order to launch your business. By ensuring your company qualifies for SEIS status you will be able to attract investors as the scheme offers them generous tax relief opportunities.

Your company must meet the following criteria:

• The company must not be listed on any recognised stock exchange at the time of issuing shares, nor have any pre-arranged plans to be listed at a later date.
• It may however be listed on Alternative Investment Market and PLUS Markets (with the exception of PLUS-listed).
• It is possible for a company to become quoted on the London Stock Exchange (or other recognised stock exchange) after shares have been issued (so long as it complies with the rule mentioned above regarding pre-arranged plans at the time of share issue).
• There must be fewer than 25 employees at the company
• Total company profits before tax cannot exceed £200,000
• There must be no previous funding received through either Venture Capital Trust (VCT) or Enterprise Investment Scheme (EIS)
• The company must be permanently registered in the UK
• Business trading must be under 2 years
• The company must not be a subsidiary or controlled by another company, however it may have its own subsidiaries so long as they do not have more than 50% of the ordinary share capital and are not controlled by any other external company.
• Funds raised from shares must be used for a qualifying business purpose

It is important to note that this is not an exhaustive list. There are many additional complex factors that need to be adhered to (some of which we shall cover below) in order for the SEIS claim to be successful.

To understand how SEIS tax relief works in practice we've provided an example for each scenario:

As an investor seeking tax relief from SEIS you must also meet certain conditions in order to be eligible to claim:

• You must not be an employee of the company (but you may be a director of the company, so long as you are appointed after the shares have been transferred and cash has been paid
• You cannot hold more than 30% interest in terms of share capital, voting power or assets
• Shares in the company must be kept for a period of at least 3 years
• The shares must not be acquired using a loan where the terms of the loan are dependent upon the initial investment
• The maximum you can invest is £100,000
• You should not have any other related investments
• The shares must be bought with cash and not any other type of asset, and paid in full at the time of the shares being issued
• The shares must be full-risk ordinary shares, which do not hold any preferential rights to the company’s assets in the event of a winding up
• The issue of shares must not be issued under any arrangement whereby there are reciprocal benefits i.e. company owners cannot agree to invest in each other’s companies in order to obtain tax relief

A step by step guide on how to claim SEIS tax relief:

1. Make sure the company qualifies for SEIS. We have already outlined the key criteria, however, determining whether a business is eligible should be examined on each individual circumstance.
2. Obtain Advance Assurance. To apply for Advance Assurance the SEIS(AA) form will need to be completed and submitted to HMRC. Whilst this step is not mandatory, it is strongly recommended as it allows for the Small Companies Enterprise Centre (SCEC) to advise on whether the business will qualify for SEIS tax relief. It will therefore also flag up any issues which can be remedied before approaching investors. Many investors will only consider a company with Advance Assurance so it is a worthwhile process to complete.
3. Transfer of shares for funding. It is important to remember that these must be of ordinary shares worth no more than 30% of the company that have been exchanged for cash.
4. Investor claims tax relief via SEIS1 form. Once a company has been trading for at least 4 months, or has spent 70% of the investment, an investor can claim for tax relief. The SEIS1 form needs to be completed by the company and returned to the SCEC. The form contains a declaration that at the time of completion, all requirements are met.
5. SCEC to approve SEIS1 form. If the SCEC are satisfied that the company, activity, and shares all meet the requirements of the scheme they will provide the company with a Compliance Statement. They will also supply claim forms (called SEIS3) to the company which pass them onto the investors in order for them to claim the tax relief.
6. Investor to receive tax relief. In order to receive the tax relief, the investor should make a claim on their Self Assessment tax return along with the SEIS3 form. Investors have up to 5 years after the 31 January following the tax year in which the investment was first made.