In an effort to provide greater support to early-stage businesses, the UK government has announced key changes to its Seed Enterprise Investment Scheme or SEIS. These changes, due to come into effect from April 2023, will allow businesses to increase the amount of money they can raise, extend their trading limit, and increase the amount an investor can claim in SEIS relief. Let's explore the finer details - and outline how you can leverage this for your business.
What is SEIS relief?
The SEIS (or Seed Enterprise Investment) scheme provides investors with income tax relief at a rate of 50% on the value of an investment, making it a particularly attractive scheme to garner investor interest. Prior to the Government's most recent SEIS announcement, companies could raise up to £150,000 under the Seed Enterprise Investment Scheme.
What changes are the UK government making to the SEIS scheme?
As part of its package of support for UK businesses, the government has set out a number of key changes.
- The limit on the amount of money a company can raise through the SEIS scheme will raise from £150K to £250K.
- The gross asset limit will raise from £200K to £350K.
- The trading limit will increase from 2 years to 3 years.
- The amount that an investor can claim SEIS relief on will increase from £100K to £200K.
What should businesses be aware of from now until April 2023?
UK businesses seeking to raise money should now avoid exceeding the current £150K limit under SEIS, because once shares have been issued under EIS any subsequent investment won’t be eligible for SEIS, even if the new £250K limit hasn’t been exceeded.
Businesses that need investment now can raise monies under an Advance Subscription Agreement (ASA). As HMRC has confirmed that monies raised under ASAs will likely be eligible for SEIS/EIS (as long as shares are issued within six months from their effective date) monies raised from ASAs entered into on or after 6th October 2022 would therefore potentially benefit from the increased limit - which is expected to come into effect on 6th April 2023.
Why only “potentially benefit”? All we have right now is a Government announcement and, as we’ve seen with the rollback on the 45p tax rate, it’s possible that things can change. In any case, new legislation will be needed to bring the changes in effect from 6th April 2023 as proposed.
What is the EIS tax relief scheme?
The EIS (or the Enterprise Investment Scheme) provides investors with up to 30% of their investment back in income tax relief. Loss relief can also be set against investors’ capital gains tax or income tax in the year of disposal or the previous year. While a company can raise monies under EIS even if the SEIS limit hasn’t been exceeded, once shares have been issued under EIS it’s not possible to raise monies under SEIS.
What is an Advance Subscription Agreement?
An Advance Subscription Agreement is an agreement by an investor to give money to a company, in return for shares being issued to them at some point in the future. For example, when the company raises money, or after a specified period. Under ASAs, finances advanced to a company before shares are issued can still attract SEIS/EIS tax relief as long as they are guaranteed to "convert" within six months. To attract SEIS/EIS tax relief, monies advanced under an ASA must not be capable of repayment and interest cannot be payable on those monies.
What next steps should businesses take?
To leverage these new changes, businesses should ensure that they don’t exceed the existing SEIS limit of £150K and issue any shares under EIS. Businesses wanting to ensure that investors can benefit from the increased SEIS limit of £250K should consider using ASAs with investors that are entered into on or after 6th October 2023.
As a firm specialising in the support of fast-growth SMEs, we've helped countless businesses raise money under ASAs, and intimately understand the ins and outs of making the most of this tax relief system.
Think the UK government's update will impact your business? Discover how we can help you make the most of the opportunity.
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