Increases to SEIS are now live (sort of)

Increased funding limits and expanded company eligibility criteria came into effect on April 6 2023. But they’re not enshrined in law, yet.

You may recall us celebrating the changes to the Seed Enterprise Investment Scheme (SEIS) when they were first announced. If not, here’s what’s new with SEIS:

• Companies can raise up to £250,000 under SEIS (up from £150,000)
  
  
• Investors can claim tax relief on up to £200,000 each tax year (up from £100,000) 
  
  
• The maximum permitted trading age of companies has increased from 2 to 3 years.
  
  
• A company’s gross assets can be valued up to £350,000 (up from £200,000). 

It’s good news for companies and investors alike, and the changes are designed to increase funding in startups and spur growth in the UK once again. 

And while it’s highly likely that these changes will go ahead, they’re not law yet. 

That’s because the Finance Bill – which these changes are part of – is still making its way through the House of Commons, then the House of Lords, before it receives Royal Assent.

It’s a whole process to get government approval before something becomes law, and changes to SEIS are no different. We’re expecting it to be law in July 2023.

Check out the bill's progress: https://bills.parliament.uk/bills/3435 

What should I do if I want to make use of the new SEIS limits? 

If you’re actively starting the SEIS process and want to make use of the higher funding limits – or your company only meets the new eligibility criteria – there are a few practical steps you can take to keep the ball rolling while ensuring you don’t overpromise investors. 

Apply for both SEIS & EIS advance assurance 

It’s only a few extra questions when applying for advance assurance on Vestd.

This way, you’ll gain investor confidence that your company is eligible for both schemes, and should you wish to raise more than £150,000, any amount over £150,000 will still be eligible for at least 30% tax relief (that’s assuming the worst happens and the bill falls through). 

Applying for both schemes will give you lots of wiggle room when it comes to entering your funding goals. 

And once HMRC provides their assurance, the bill could well be law by then, so you can make use of the £250,000 SEIS funding limit. 

If the bill hasn’t passed by this time and your investors are eager (which would be unlikely as they’re missing out on greater tax breaks too), it’s essential that you issue all the SEIS shares first. 

Once you issue EIS shares, you cannot go back and issue SEIS again, so you may need to manage expectations with your investors. This could be taking the SEIS investment in full and issuing the shares, but holding off taking any EIS investment until the bill passes.

Once the bill passes, you can raise an extra £100,000 under SEIS – and investors can also claim up to 50% tax relief on double the amount. 

Hold off submitting your compliance statement

You usually have to wait at least 4 months before submitting the compliance statement (which would take us August at the time of writing), but there is no immediate rush to do so.

In fact, you have two years to submit it – but investors will pester you to do it sooner rather than later. 

However in this current situation, it’s in your investors’ best interest to hold fire on the compliance statement – that is if they have exceeded the previous investor limit of £100,000, or you have raised more than £150,000 under SEIS. 

If all’s well and the bill passes, you can submit the compliance statement and declare that investor X invested £200,000 in your business, and they will be able to claim tax relief on the full amount. 

What’s HMRC’s position? 

HMRC have said they will honour the changes as if the changes were law from April 6, but they won’t be able to ‘legally’ issue any advance assurance or compliance documents until the changes actually become law.  

In other words, HMRC cannot grant advance assurance for amounts over £150,000 or issue SEIS3 certificates to investors for amounts over £100,000. 

You can still get the ball rolling and make use of the higher funding or investor limits, but HMRC won’t give you the green light on amounts over the current limits until the changes pass into law (expected around July 2023). 

While the risk is low, you should not lose sight that the changes may never become law. If this is the case, any amount over the current (old) limits won’t be subject to tax relief. Unless they are issued under EIS, where up to 30% can be claimed back through tax relief. 

Expect – or encourage – delays… 

It usually takes 4-6 weeks to get advance assurance from HMRC. While they haven’t said there will be delays, you can imagine an influx of applications and questions coming in asking what to do about the new funding limits. 

It’s worth adding that advance assurance isn’t mandatory but a nice to have for investors. However, if you or your investors are confident your company is eligible for SEIS, you can take investment before receiving advance assurance. 

Once the investment is received and you turn your attention to the compliance statement, explain the current situation to your investors. If an individual has invested more than £100,000 under SEIS, it’s in their best interest to wait until the changes become law too. 

Plus investors won’t get their tax relief until the following tax year anyway, so there really is no rush. 

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