The investor's guide to claiming EIS and SEIS tax relief
Are you an investor looking to support early-stage companies but the risk is weighing on your mind? The Seed Enterprise Investment Scheme (SEIS) and...
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Turning a bright idea into a successful company requires more than just hard work and determination – it needs capital.
This is where the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) come into play.
These government initiatives have been instrumental in bridging the funding gap for early-stage businesses, providing a leg-up for startups seeking to scale and grow.
But what exactly are EIS and SEIS, and how do they work? And what do HMRC’s latest statistics tell us about their impact on today’s entrepreneurial landscape?
Let's find out.
EIS and SEIS are tax-incentive schemes designed to encourage investment in early-stage companies. They work by offering generous tax reliefs to investors who purchase new shares in qualifying businesses.
Under EIS, investors can claim up to 30% income tax relief on investments up to £1 million per tax year. So, if an investor puts £100,000 into an EIS-eligible company, they can reduce their income tax bill by £30,000.
SEIS, which is focused on younger businesses, offers even more generous reliefs.
Investors can claim 50% income tax relief on investments up to £200,000 per tax year (this doubled from £100,000 in April 2023). So, for example, a £50,000 investment would yield a £25,000 reduction in income tax.
But the benefits don't stop there. Both schemes also offer Capital Gains Tax (CGT) relief, loss relief, and CGT reinvestment relief, making them highly attractive to investors looking for tax-efficient ways to support early-stage businesses.
Through these tax incentives, EIS and SEIS provide a way to tap into a pool of investment capital that might otherwise be out of reach.
So, how did EIS perform in the 2022-2023 tax year for the broader-based EIS scheme?
HMRC’s data tells us that despite a challenging economic climate, it continued to attract substantial investment.
In total, 4,205 companies raised £1,957 million through EIS in 2022-2023.
While this represents a 15% decrease from the previous year's record-breaking figures, it's still a robust performance considering the headwinds of rising interest rates and global uncertainty.
Interestingly, around £436 million of the total was invested in 1,280 companies raising EIS funds for the first time. This shows the scheme's role in lifting new businesses off the ground.
Looking at the sectoral breakdown, we see that companies in the Information and Communication sector attracted the lion's share of investment, securing £660 million (34% of the total).
This is perhaps unsurprising given the UK's strength in fields like artificial intelligence (AI), cybersecurity and fintech.
Geographically, London and the South East continued to dominate, with companies in these regions raising a combined £1.280 billion (65% of the total).
From an investor perspective, EIS remained a compelling choice for those seeking tax-efficient ways to support early-stage businesses.
A huge 40,485 investors claimed Income Tax relief under the scheme.
While EIS caters to a broad range of early-stage companies, SEIS is specifically designed to support businesses at the very start of their journey.
In the 2022-2023 tax year, 1,815 companies raised £157 million through SEIS.
This represents a 24% decrease from the previous year, likely due to the more pronounced impact of economic headwinds on the younger, higher-risk companies that the scheme supports.
Venture capital funding in tech specifically fell in both 2022 and 2023 compared to a record-breaking 2021, which tallies, but it remains the highest in Europe and is expected to bounce back.
Let’s put these figures in context. Of the companies that raised SEIS funds, around 1,440 were doing so for the first time.
These businesses secured £137 million in investment – capital that could be the difference between an idea staying on the drawing board or becoming the next unicorn.
As with EIS, the Information and Communication sector was the biggest beneficiary of SEIS investment, attracting £62 million (39% of the total).
And once again, London and the South East led the way geographically, with companies in these regions raising £102 million (65% of the total).
On the investor side, 8,065 individuals claimed Income Tax relief under SEIS in 2022-2023. Notably, the total amount claimed only decreased by 10%, compared to the 24% drop in funds raised.
So, the scheme's generous tax reliefs remain a strong draw for investors despite economic challenges.
If you're looking to raise funds through EIS or SEIS, securing advance assurance from HMRC should be at the top of your to-do list.
In a nutshell, advance assurance involves HMRC confirming that your proposed share issue is likely to qualify for the tax reliefs associated with EIS and SEIS.
It's a seal of approval showing that backing your company comes with tax perks.
That’s a big deal because investors love certainty. They want to know that the tax reliefs they've been promised are actually going to materialise.
However, while it can make the difference between a successful funding round and a more gruelling, uphill task, obtaining advance assurance isn't always a walk in the park.
In the 2023-2024 tax year, HMRC received over 5,800 advance assurance applications across EIS and SEIS. Most were approved, but a large chunk – around 20-27% – were not.
Luckily, though, there are surefire strategies that can tip the odds in your favour.
In our experience, successfully obtaining advance approval is all about preparation and expertise.
You need to know EIS and SEIS rules inside out and present a compelling, watertight case to HMRC. That includes submitting a detailed application detailing everything from your company structure to your business plan.
Here’s how we can make it so much easier for you: customers on our Guided and Full Service plans can organise and apply for advance assurance through the Vestd app.
Simply fill in the fields and upload your company docs, and we'll submit the application to HMRC on your behalf.
Once you've secured funding, our platform streamlines the process of managing your investors and maintaining your cap table. You can even issue shares and share certificates to your new investors in a couple of clicks.
Itching to learn more? We've helped many companies utilise EIS/SEIS to achieve their funding goals, and we're ready to do the same for you.
Apply for SEIS/EIS advanced assurance through Vestd and make investors an offer they can’t refuse!
Are you an investor looking to support early-stage companies but the risk is weighing on your mind? The Seed Enterprise Investment Scheme (SEIS) and...
Increased funding limits and expanded company eligibility criteria came into effect on April 6 2023. But they’re not enshrined in law, yet.