EIS and SEIS

For Founders, By Founders

Overview and benefits

As part of our services to our clients, we help them raise finance for their growing businesses. EIS and SEIS scheme are a great tool to make that easier.

Usually, when startups need funds to fuel their growth, they seek to raise finance from VCs and Angel investors. Any investment involves some risk: unfortunately not all businesses manage to become profitable and grow. Early-stage companies are considered particularly risky for investors, but they also hold the potential for delivering a very high ROI.

That’s why the Government set up two investment schemes – namely EIS and SEIS – to encourage investors to undertake these risks and bet on innovative businesses.

The EIS Scheme

Most growing businesses are eligible for the Enterprise Investment Scheme (EIS). The upper threshold for EIS is total gross assets worth less than 15 million pound.

EIS allows you to raise up to 5 million pounds per year. That is limited to 1 million pound per single investor, and each investor is entitled to an initial income tax relief of 30% of the value invested. EIS even provides for a “carry back” clause which allows you to benefit from reliefs derived from investment made the preceding year.

If your investor earns money from the sale of your shares after 3 years from the investment, they don’t pay any capital gains tax (CGT) on the value earned.

If, conversely, your business fails and your investors lose their money, they can offset that loss with a tax relief up to 22.5% of the amount invested.

The SEIS Scheme

Smaller companies at the seeding stage, might also benefit from the Seed Enterprise Investment Scheme (SEIS).

In order to be eligible for the scheme, your company must not hold gross assets worth more than £200,000 and have no more than 25 full-time employees.

With these schemes your investors can get tax reliefs worth up to 50% of the money invested. This means they can basically reduce their risk by half and makes them way more keen to offer funds for your startup.

You can raise up to £150,000 through SEIS investment. Any individual investor can invest as much as £100,000 in any tax year.

As for EIS, investors who sell your shares at a profit are exempt from capital gains tax. They can also offset their losses by up to 31.5% if your business goes bust.

If you exceed the assets limit for SEIS, you can still benefit from its bigger brother: EIS.

 

That’s loads of numbers! But the most important one is that the average IRR for investor is two times higher with EIS and SEIS, according to Seedrs. That makes them 2 times more likely to invest in your business.

Our Expertise

Applying to these schemes can require much time and effort, you’ll need a business plan, memorandum, last annual accounts and a cash flow forecast as well as your shareholder agreement and any prospectuses and documents targeted to potential investors.

As you probably know, on average, founders spend a third of their time trying to secure investment for their business. But we are here to help.

As ICAEW certified accountants, not only we can advise on structuring, eligibility and pitfalls to avoid before and after you raise capital. We also liaise with HMRC to obtain Advance Assurance of your eligibility and help you obtain investor certificates while making sure you are always compliant.

Come talk to us for a free hour of consultancy, we can help you figure out the best way you could benefit from these schemes and plan a successful round of funding for your business!

Ignition quickly identified our structure disqualified us from EIS status. They found the problem, advised a solution and obtained clearance from HMRC. We are very happy with Ignition and would recommend them to any Scale-Up.

Cosmin Mihaiu – Founder, Mira Rehab.

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