Qualifying for SEIS: understanding eligibility criteria

The Seed Enterprise Investment Scheme (SEIS) is a powerful tool for founders to incentivise investors. It does this by offering significant tax reliefs to investors who fund SEIS-approved businesses.

This enables startups to grow and fuels the expansion of industry in the UK whilst reducing the risk and financial burden this may have on investors. 

If you’re a founder or investor keen to take advantage of this scheme, it’s essential to understand the eligibility requirements. Here, we break down the key rules, including restrictions, qualifying industries, and specific criteria for both companies and investors.

SEIS qualifying criteria

To qualify for SEIS, companies need to meet specific restrictions and criteria. Without meeting these requirements, they won’t be eligible to access SEIS and its tax-efficient investment incentives. However, they may still qualify for EIS if they meet the necessary criteria.

Age of the company

Your company must have been trading for no more than 3 years.

Gross assets

The company must not have gross assets that exceed £350,000, exclusive of prospective investment.

Number of employees

There must be no more than 25 full-time equivalent employees at the time of investment.

Funds raised

Companies can raise up to £250,000 through SEIS in their lifetime. Should the value exceed this, then EIS could be an alternative option.

Permanent establishment

The company must have a permanent establishment in the UK. This is because the scheme is designed to boost the UK’s economy by fueling industry growth.

Company independence

It cannot be under the control of another company, and any subsidiaries must also meet the criteria to qualify.

New shares only

The shares you issue through SEIS must be new, ordinary shares. They cannot be transferred from existing shares.

Use of funds

Funds raised must be used for a qualifying trade, and spent within three years of receiving investment.

These qualifying criteria can be complex, and it’s not always straightforward to determine if your business could raise through SEIS. For more guidance, explore our help guide or book a call to determine if you could qualify.

Excluded trades

Whilst most industries are eligible for SEIS, there are certain trades that are excluded from the scheme. Here are some examples of industries that can’t qualify: 

• Coal or steel production
• Farming or market gardening
• Leasing activities
• Legal or financial services
• Property development
• Running a hotel
• Running a nursing home
• Generation of energy
• Production of gas or other fuel
• Exporting electricity
• Banking, insurance, debt or financing services
• Dealing in land or commodities

HMRC also provides additional guidelines to address some of the trickier grey areas within these restrictions. If your business spans multiple industries, your primary trade needs to fall within a qualifying category. 

Keep in mind that if a significant portion of your activities (typically around 20%) is linked to an excluded trade, you may not qualify for SEIS.

For more information on excluded industries, please see our help guide.

Restrictions for investors

To benefit from SEIS tax relief, investors must also meet certain eligibility criteria:

Not connected to the company

• Investors cannot hold more than 30% of the company’s shares.
• They cannot be an employee of the company, although they can be a director.*
• Not a spouse, civil partnership, parent, grandparent, child or grandchild.

Investment cap

Can only invest up to £2100,000 per year under SEIS.

Risk to capital

There must be sufficient risk to the money invested in order to qualify. For more details on risk to capital, check out our blog.

No options on shares

The investment must not involve any put or call options within the first three years.

Put options give the owner the right to sell an underlying asset (such as shares) at a pre-determined strike price, whereas call options give the owner the right to buy an underlying asset at a pre-determined strike price.

No value received

The investor must not receive any value from the company (e.g. dividends) within the first three years.

Hold period

Shares must be held for at least three years post-investment to retain tax relief.

UK taxpayer

The investor must be liable for UK Income Tax.

*Directors are eligible for SEIS/EIS tax relief in certain situations. Learn more.

Check your eligibility with InVestd Raise

Navigating SEIS eligibility requirements can feel daunting, but you don’t have to go it alone.

With InVestd Raise, we guide you through the process, ensuring you meet all the criteria to give your business the best shot at success.

From checking your eligibility to submitting applications and managing all HMRC correspondence, we handle it all.

Let us help you unlock the benefits of SEIS. Book a call today to see how we can make your fundraising journey as seamless as possible.