EIS and SEIS are two of the best-known and most well-used schemes available to individuals looking to invest in seed or high-growth business opportunities. For more information on the schemes themselves, Burton Beavan provided a detailed summary in this blogpost here.

Prior to opening themselves up for investment, many companies look for “advanced assurance” from HMRC that their share issue will meet the qualifying conditions for SEIS and EIS.

In this article, we examine some of the changes around seeking that advanced assurance following the publication of the Chancellor’s “Patient Capital Review”.

SEIS and EIS – primer

The Enterprise Investment Scheme (EIS), launched in 1993, is a tax efficient method of investing in smaller companies. Investors use this relief (up to £1,000,000 a year with carry back if required) to gain:

• up to 30% income tax relief (offering a maximum reduction of £300,000),
• inheritance tax relief
• an exemption from Capital Gains Tax (if shares are held for more than 3 years), and
• Capital Gains Tax deferral (from the disposal of any asset subject to timing restrictions).

Loss relief is also available on EIS investments if the investor sells the shares for less than he or she bought them. This loss can offset against the investor’s income in the year the shares or sold or on their income from the previous year than being offset against capital gains.

The Seed Enterprise Investment Scheme (SEIS) works on similar lines. £100,000 a year may be invested in the purchase of shares under SEIS. Features of the scheme include:

• up to 50% tax relief on investments
• inheritance tax relief
• an exemption from Capital Gains Tax (if shares are held for more than 3 years), and
• Capital Gains Tax deferral (from the disposal of any asset subject to timing restrictions).

As with EIS, loss relief is also available for investors on SEIS.

When a company is looking for backers, that company’s qualification for either the EIS or SEIS scheme makes a speculative investment far more attractive than other opportunities which are not on either scheme.

System tightened up

HMRC will now not consider applications for what they deem to be “speculative applications”. HMRC will now only provide companies with SEIS or EIS approval where the names of any investors or fund managers are included with the application. There has been no clarity given on whether these investors form part of a group – for example, EIS fund platforms, business angels, investment management firms, or crowdfunding websites.

Second, they seem to want to stop investments joining the scheme where a “low return” is offered using the new “risk to capital” condition. A business must show simultaneously that there is a major opportunity for it to “grow and develop” quickly whilst there is a material risk to an investor that they may lose some or all of their capital.

Mentioned in the last Autumn budget but still lacking a clear definition is the term “knowledge intensive companies”. Individuals may only make £1m a year worth of investment in standard EIS schemes however that limit is raised to £2m a year for knowledge intensive companies.

Help with the changes to SEIS and EIS

Burton Beavan have worked with many companies and investors on both EIS and SEIS opportunities. We’re fully conversant with these new requirements to join and would welcome the opportunity to provide you and your company with support and guidance. To find out more, please call us today on 01606 333 900 or email hello@burtonbeavan.co.uk.