How hard is it to raise money for a new business?
Starting a company and looking for investment? Where to start?
Well… have you heard of the Seed & Enterprise Investment Scheme (SEIS/EIS)?
SEIS/EIS is a massive benefit that will help your business raise vital funds to work… you could go as far to say- it’s vital to a successful investment pitch and is very attractive to potential investors.
The following is a bit of an overview to SEIS/EIS but always seek advice from your accountant or Financial specialist.
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are two of a number of UK government initiatives which encourage innovation by granting private investors a significant tax break when investing in the early stages of a business.
So how does it work?
SEIS
- A company can raise a maximum of £150,000 in SEIS funding,
- SEIS is focused on very early-stage companies, and allows an individual to invest up to £100,000 per tax year and to receive a 50% tax break in return. The investor will also benefit from a capital gains tax exemption on any profits that arise from the sale of shares after three years.
- With both SEIS and EIS, there is no inheritance tax to pay on shares held for at least two years. Finally, if shares are eventually sold at a loss, the investor may offset the loss against their capital gains tax.
EIS
- A maximum of £12 million per company can be raised in EIS funding.
- EIS, on the other hand, focuses on medium sized start-ups. It allows an individual to invest up to £1 million per tax year and to receive a 30% tax break in return. As with SEIS, the investor will also pay no capital gains tax on any profit arising from the sale of the shares after three years.
- With both SEIS and EIS, there is no inheritance tax to pay on shares held for at least two years. Finally, if shares are eventually sold at a loss, the investor may offset the loss against their capital gains tax.
In order to accept SEIS or EIS investment, the funds raised must be used for a qualifying business activity. They must be used solely to promote the growth and development of the company, such as hiring new employees, developing the product or marketing.
There is also strict criteria that an individual investing under SEIS or EIS must not hold more than 30% of the company’s overall shares, nor must he be connected to the company in a Director or Employment capacity. An investor may be given a Director position on the board after the shares are issued but not before, and it is therefore important that investor are issued their shares before they’re appointed as a Director.
What you need to apply for SEIS/ EIS?
- All applications must be submitted to HMRC before you can offer SEIS or EIS investment opportunities.
- Details of at least one potential investor
- Detailed 3 year business plan & financial forecast
- Copy of your latest accounts
- Cover letter and various other documents.
