What is the seed enterprise investment scheme?

Question

Accepted Answer

Here is a comprehensive overview of the Seed Enterprise Investment Scheme (SEIS):

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## What the law says

**Definition and purpose**
The SEIS is a scheme providing SEIS income tax relief ("SEIS relief"), defined as entitlement to tax reductions in respect of amounts subscribed by individuals for shares in companies carrying on new businesses.

**Commencement**
The scheme has effect in relation to shares issued on or after 6 April 2012 only.

**Eligibility conditions**
An individual ("the investor") is eligible for SEIS relief in respect of an amount subscribed on their own behalf for shares in a company ("the issuing company") if:
- the risk-to-capital condition is met;
- the shares ("the relevant shares") are issued to the investor;
- the investor is a **qualifying investor** in relation to the relevant shares;
- the **general requirements** (including requirements as to the purpose of the share issue and use of money raised) are met; and
- the issuing company is a **qualifying company** in relation to the relevant shares.

**Rate and amount of relief**
The SEIS rate is **50%**. The tax reduction is calculated at the SEIS rate on the amount subscribed, capped at **£200,000** per tax year (for shares issued on or after 6 April 2023).

**Carry-back**
An investor may elect to treat shares issued in the current tax year as if they had been issued in the preceding tax year, allowing relief to be carried back.

**Capital gains re-investment relief**
In addition to income tax relief, SEIS also provides capital gains re-investment relief under Schedule 5BB to TCGA 1992.

**Withdrawal of relief**
If SEIS relief falls to be withdrawn or reduced, it must be withdrawn by the making of an assessment to income tax for the tax year for which the relief was obtained.

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## HMRC guidance / practice

**Policy purpose**
HMRC describes SEIS as intended to encourage individuals to subscribe for shares in small, early-stage companies that would otherwise struggle to raise finance to support their growth and development.

**Relationship to EIS**
SEIS was introduced in April 2012 to run alongside the existing Enterprise Investment Scheme (EIS). The relief rate of 50% differs from that available under EIS.

**Compliance certificate (SEIS3)**
An investor cannot claim SEIS income tax relief until the issuing company sends a compliance certificate (form SEIS3) to the investor. Companies cannot issue SEIS3 certificates without first obtaining authorisation from HMRC and a Unique Investment Reference (UIR) number.

**Qualifying company conditions**
The issuing company must satisfy conditions relating to: trading, carrying on a qualifying business activity, UK permanent establishment, financial health, unquoted status, control and independence, no partnerships, gross assets (up to £350,000 for shares issued on or after 6 April 2023), number of employees, no previous other risk capital scheme investments, the amount raised through the SEIS (up to £250,000), qualifying subsidiaries, and property managing subsidiaries.

**Ongoing compliance**
The company must observe certain rules not just at the time of investment but for at least three years afterwards. If it fails to meet those rules, tax relief will not be given or, if already given, will be withdrawn.

**Claiming relief**
- Relief is claimed at box 10 of the 'Other tax reliefs' section of the Additional Information page (Ai2) of the Self Assessment return.
- The deadline for making a claim is **five years after the normal Self Assessment filing date** of the relevant tax year.

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