Individuals can obtain 50% income tax relief on the amount subscribed for Shares in SEIS Qualifying Companies (up to an annual maximum £100,000 for the 2016/2017 tax year) although relief will be denied for investment into an SEIS qualifying company with which the individual is connected. Spouses and civil partners can each separately subscribe up to £100,000.
The relief is given against the individual’s income tax liability for the tax year in which the shares are issued unless the individual makes a Carry Back Relief claim. Relief is restricted to an amount which reduces the investor’s income tax for the year to nil.
Any capital gains realised on a disposal of shares in an SEIS qualifying company after the SEIS three year period, and on which SEIS relief has been given and not withdrawn, will be capital gains tax free. Any capital gains realised on a disposal within the SEIS three year period will be subject to CGT.
Tax relief is available at any time in respect of any loss realised upon a disposal of shares in an SEIS qualifying company on which SEIS income tax relief has been given and not withdrawn. The amount of the loss (after taking account of any income tax relief initially obtained) can be set against the individual’s gains in the tax year in which the disposal occurs, or, if not fully used, against gains of a subsequent year. Alternatively, on making a claim, the loss net of income tax relief may be set off against the individual’s taxable income in either the tax year in which the disposal occurs, or the previous tax year.
If the circumstances are such that SEIS tax reliefs have been withdrawn, it may still be possible for an investor to claim loss relief, for an amount equal to the economic loss sustained, however, the amount of relief would be restricted to the greater of £50,000 or 25% of adjusted total income for Income Tax purposes.
Although not an SEIS tax relief as such, an investment in an SEIS qualifying company will normally qualify for 100% relief from Inheritance Tax (IHT) under current legislation, provided the investment has been held for at least two years and is still held at time of death. There is no upper limit on the amount of IHT relief which can be claimed.
The relevant dates for income tax relief, from a tax year perspective, are the dates on which Investments are made into a company. The latest date you can file a claim for SEIS relief is five years after 31 January following the tax year to which the claim relates.
On investment into a Company an application on your behalf (normally made by the company) will be made to HMRC for SEIS3 certificates (by submitting to HMRC the SEIS1 certificate). The application of the SEIS1 certificate to HMRC cannot normally be made until the Company has carried on its trade for a minimum of four months or, if earlier, after the Company, has spent at least 70% of the money raised through issue of SEIS qualifying shares. Subject to this, SEIS3 certificates are typically sent out to investors within eight weeks of each underlying investment. The SEIS3 certificate enables an investor to claim their income tax relief and capital gains tax exemption, normally by making the appropriate entries on their own tax return.
In order to qualify for SEIS, the Company must initially (i.e. at the time of issue of the Shares) not be listed on a recognised stock exchange (as defined for the purposes of SEIS Relief) and there must be no “arrangements” in place for it to become so listed. In addition, throughout the three year SEIS period, it must not be a subsidiary of, or be controlled by, another company. It must either exist to carry on a qualifying trade or else be the parent company of a trading group and there must be no “arrangements” in existence for the company to become a subsidiary of, or be controlled by, another company.
A trading group is a group in which, directly or indirectly, more than 50% of the shares of each subsidiary are held by another member of the group, but any subsidiary employing any of the money raised by the issue of Shares must be a qualifying 90% subsidiary. Non-qualifying business activities (broadly, investment activities and non-qualifying trades) must not comprise a substantial part of the business of the group as a whole. The qualifying business activity for which the money is raised by the issue of Shares must be a trade conducted on a commercial basis and with a view to the realisation of profit.
Although it is possible for qualifying activities to be carried on anywhere in the world, the company that issues the shares must have a “permanent establishment” (broadly, a taxable presence) in the United Kingdom.
For SEIS purposes, the value of the gross assets of the Company and any subsidiaries must not exceed £200,000 immediately before the issue of Shares. Subject to certain exceptions, the maximum SEIS fundraising per Company is restricted to an all-time maximum of £150,000 and the maximum number of full-time employees (or full-time equivalent) in the Company at the time of Investment is restricted to fewer than 25.
It is not possible for a company to qualify for SEIS relief if it has previously issued shares on which EIS Relief has been claimed, or has issued shares to, or received an investment from, a venture capital trust. If a company issues shares on which SEIS Relief is claimed, it is possible for it to issue subsequent shares on which EIS Relief may be claimed.
Most types of trades are qualifying trades for SEIS purposes but the following are excluded:
The trade of the company must generally be less than two years old at the time of the investment. Companies “in difficulty” cannot receive SEIS investment. In practice, HMRC accept that a company will not be treated as “in difficulty” within three years of its formation or if it is able to raise funds from existing shareholders or the market.
Shares only qualify for SEIS Relief if they are ordinary shares which do not, at any time during the three year SEIS period, carry any present or future preferential right to dividends (other than to certain fixed rate non-cumulative dividends) or to a Company’s assets on its winding up, or any present or future right to be redeemed.
An investor can obtain SEIS income tax relief only in the tax year in which investments in qualifying SEIS companies are made (i.e. the tax year in which the investor invests), or in the immediately preceding tax year.
Please note that this is only a condensed summary of the taxation legislation and should not be construed as constituting advice which a potential investor should obtain from his or her own investment or taxation adviser. The value of any tax reliefs will depend on the individual circumstances of investors.
Most types of trades are qualifying trades for SEIS purposes but the following are excluded:
In order to qualify for SEIS, the Company must initially (i.e. at the time of issue of the shares) not be listed on a recognised stock exchange (as defined for the purposes of SEIS Relief) and there must be no “arrangements” in place for it to become so listed.
However, the AIM market is not considered to be a recognised stock exchange for the purposes of SEIS Relief and therefore a SEIS Company can be quoted and float on the AIM market.
Below is a general summary:
Qualifying investors who qualify for SEIS may benefit from:
Qualifying investors who qualify for EIS may benefit from:
Please note that this is only a condensed summary of the taxation legislation and should not be construed as constituting advice which a potential investor and / or company should obtain from their own investment or taxation adviser. The value of any tax reliefs will depend on the individual circumstances.
There are many excellent SEIS and / or EIS fund providers that you can choose from. A potential investor must be a suitable investor and prior to our sending the investment document (the Information Memorandum) the investor needs to confirm they can be categorised as one of the following types of investor:
EITHER a Professional client;
OR a Certified high net worth investor;
OR a Certified sophisticated investor;
OR a Self-certified sophisticated investor;
OR a Certified restricted investor.
We would be happy to help if you are interested in investing in a SEIS and / or an EIS fund. Please email us on firstname.lastname@example.org
Please note that this is only a condensed summary and should not be construed as constituting advice which a potential investor and / or company should obtain from their own adviser.
Crowdfunding is a way of presenting, administrating and promoting investment opportunities to a wide audience. It encompasses Equity Crowd Funding, P2P Lending and Rewards based crowd funding.
Growing companies use Equity Crowdfunding to raise funds from new or existing investors. The raise is promoted through a digital platform that widens the reach to potential investors. The leading platforms are Crowdcube and Seedrs.
Is the company ready to bring new share holders into the business? Is the company comfortable sharing sensitive company information through a public offering? Do the management team have the time and resources required to mount a 4 week campaign? How will this new cap table affect future plans to exit the business? Does the company want more from a funding round than money – smart money, new customers, product launched?
An established business with a proven concept, initial customers, a settled/ experienced management team, strong industry advocates and strong plan for expansion leading to dividends or exit.
A well managed business with an easily understood product or service that offers a strong proposition to potential investors. It should be promoted widely but with a focus on potential investors who understand the sector and will want to get involved. The investment process should be professional and easy.
Before approaching a platform it is crucial to be well prepared. Increasingly platforms are turning away from early stage friend and family rounds (unless the business owner has a strong track record) to focus on growing expanding companies. It therefore makes sense to boot strap your business to get some proof of concept, early adopters and if possible customers. Make sure you have a good management team and corporate governance in place. Develop a business plan and understand the implications of going to the crowd. Then research platforms and approach one, which suits your business and has a track record of supporting the funding of businesses similar to yours. Then reach out and when possible meet them in person.
Kick Starter is the campion of rewards based crowd funding. If you are a manufacturing business and want a way to launch a prototype you can invite people to prebuy to allow you to raise the funds necessary to develop and test the product.
As banks retreated from small business lending and interest rates remained low, a number of platforms emerged that take investor funds and then lend them to small businesses and property developers.
The fastest growing sector in P2P is property development finance. The common requirements are that the developer has an asset to provide security, the loan to value will be around 65%. The borrower should expect to pay interest of around 10% and there will be fees from 2-6%.
Sapphire has the experience in supporting clients build platforms and arrange FCA authorisation if they want to create their own platform. We can also support companies who want to raise funds through a platform.