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The Seed Enterprise Investment Scheme -- known
as SEIS -- offers a range of tax reliefs to individual investors who buy new shares in
small companies, when the company is in an early start-up stage.
Obtaining funding in the critical first few years -- sometimes called the seed stage -- can
often be difficult for small companies. SEIS aims to meet this need by encouraging equity
investment in these very early stage companies. SEIS works by offering tax reliefs at a higher
rate than those currently available under the more established Enterprise Investment
Scheme, known as EIS. You can find out more about EIS at www.hmrc.gov.uk/eis
Investments in these early stage businesses are generally high-risk and therefore while
SEIS doesn't guarantee a return it does provide a number of income tax and capital gains tax
reliefs that reduce the cost of the investment. Companies can receive investment of up to
£150,000. Individuals are able to invest up to £100,000 per year in qualifying companies.
What are the tax reliefs available? Investors will be able to benefit from relief against
their income tax liability of 50% of the cost of the SEIS shares. Investors must hold their
shares for a minimum period of 3 years to retain the relief and will then also be exempt
from capital gains tax for any gains made on disposal of the SEIS shares. In addition,
for a limited period an exemption from Capital Gains Tax is also available on gains that
are reinvested in SEIS shares. The exemption is restricted by the £100,000 annual investment
limit and is only available for gains made in the tax years 2012/13, where 100% of the
reinvested gain is exempt, and 2013/14 where 50% of the reinvested gain is exempt.
If the investor makes a loss on the disposal of their SEIS shares they may have scope to offset
these losses against either their income or gains. Here are a couple of examples of investing,
using the SEIS scheme: Jenny invests £20,000 during the 2012-13 tax year in SEIS qualifying
shares. Her income tax liability for the year - before the SEIS relief - is £15,000. The
SEIS relief available is £10,000, because it is 50% of the £20,000 investment. Jenny
can then reduce her tax liability to £5,000 as a result of her investment. Neela sells
an asset in June 2012 for £200,000 and realises a chargeable gain of £80,000. If she makes
qualifying investments of at least £80,000 in SEIS shares during the 2012-13 tax year,
and all other conditions are met, then the £80,000 gain, which is 100% of her investment,
will be free from CGT. Neela does not need all of the £200,000 sale proceeds to be invested
in order to get full exemption. If she sold the asset in August 2013, realising the same
gain and invested in SEIS shares in 2013-14, then £40,000 -- which is 50% of the gain,
will be free from CGT. There are a number of qualifying conditions: first we'll look
at the investment SEIS applies to shares issued to investors on or after 6 April 2012 and
before 6 April 2017. Shares must be paid up in full and in cash when issued and be new
ordinary shares without any special rights attached. There are also qualifying conditions
for the investor, they are: Only individuals can invest, the scheme is not open to companies
or partnerships. The investor must not be employed by the company -- however directorship
is not included in this exclusion. The investor, together with any associates, can not have
an interest in the company of more than 30%. The investor does not have to be a UK resident
but must be a UK taxpayer. And finally, here are the qualifying conditions for the company.
At the time of the share issue, there are a number of conditions, they are that: The
company must be unquoted, but a listing on alternative stock exchanges such as AIM is
allowed. Any trade being carried on must be a new trade and less than 2 years old, although
the company is not required to have commenced trading at this point. The company must have
fewer than 25 employees with no more than £200,000 in gross assets. Following this,
the qualifying conditions which must be met continuously from the date of incorporation
are: The company must not be under the control of another company and there must be no arrangements
in place whereby this could happen. From 2012/13 any initial 'off the shelf period' when the
company has not issued shares other than subscriber shares and has not yet begun or prepared to
begin trading is excluded from this requirement. The company must not be a member of a partnership.
If it has any subsidiaries, the company must hold more than 50% of their ordinary share
capital. They must not be controlled - by any other means - by any other company. And
then the qualifying conditions which must be met continuously from the date of the share
issue include: The company must be a UK resident or have a permanent establishment in the UK.
The company must exist for the purpose of carrying on a qualifying trade, but certain
activities are specifically excluded. If the company is the parent company of a group,
the group's business is looked at as a whole and this must, in the main, meet the requirements
of the scheme. There are restrictions on how the money raised by a SEIS share issue can
be used. This is a summary of the conditions, rather than a comprehensive list of the scheme
requirements. If you'd like to know more about the requirements you can find more detailed
guidance about the scheme at www.hmrc.gov.uk/seedeis What about SEIS and other Venture Capital
Schemes? As long as at least 70% of the monies raised by the SEIS issue has been spent, a
company can follow this with further issues of shares under the EIS or investment from
a Venture Capital Trust. However, a company cannot issue shares under the SEIS if it has
already benefited from either of these schemes.
Within HMRC we have the Small Companies Enterprise Centre, known as the SCEC. It operates an
advance assurance facility for the SEIS. This facility gives companies the chance to submit
details of their plans in advance of an issue of shares. The Enterprise Centre will then
advise on whether or not the proposed share issue is likely to qualify for relief. The
contact details for the SCEC can be found on the SEIS web pages: www.hmrc.gov.uk/seedeis
An investor cannot claim relief until the company has
informed the SCEC of the share issue and the SCEC have authorised the relief. Providing
the company has met the requirements of the SEIS the SCEC will issue claim forms to the
company who in turn issue these to their investors. The investor can then claim relief through
their Self Assessment tax return or through a PAYE coding adjustment. And finally, these
slides have been designed to introduce the SEIS but both companies and investors are
advised to consult the guidance available on HMRC's website before taking any action
based on the content of this video. For more information visit www.hmrc.gov.uk/seedeis.
HMRC cannot provide advice on finding and making investments, for independent advice
there are a number of websites and organisations who provide information and assistance for
both investors and companies, the websites can be found on the screen now, they are:
UK Business Angels Association, LINC Scotland, the Scottish Angel Capital Association, NI
Business Angel Network and the SEIS window website.