SEIS and EIS for startups: raising investment with tax relief

Understand what the schemes are for

SEIS and EIS are UK government schemes designed to encourage investment in smaller, higher-risk trading companies by giving individual investors tax reliefs that offset some of the risk. The company does not receive a cash payment from HMRC; the benefit is tax relief for the investor, which makes the investment more attractive and can help a company raise funding that might otherwise be harder to secure.

SEIS is aimed at very early-stage companies raising smaller amounts, while EIS is available to a wider range of qualifying companies raising larger sums, often at a slightly later stage. Many startups raise an SEIS round first and an EIS round later, though this is not compulsory.

Check the current company and funding limits

Both schemes limit the size and age of a qualifying company and the amount that can be raised. These limits and conditions change periodically, so confirm the current figures on GOV.UK before planning a specific round rather than relying on limits from an older source.

As well as a cap on total funds raised under the scheme, there are limits on gross assets, employee numbers and the time since the company began trading, as well as rules preventing the company from being controlled by another company or being in certain excluded trades.

Worth knowing: Treat every numeric limit in this guide as indicative; verify the current SEIS and EIS thresholds on GOV.UK for the specific investment round.

Meet the risk-to-capital condition

Since 2018, both schemes include a 'risk-to-capital' condition intended to focus relief on investment genuinely exposed to risk in growing businesses, rather than low-risk, capital-preservation arrangements designed mainly to generate tax relief. Two broad tests are considered: whether the company has objectives to grow and develop over the long term, and whether there is a significant risk the investor could lose more capital than they stand to gain in net return.

A company using the funds to acquire another business, or whose revenue model relies on fixed, pre-determined returns rather than genuine trading risk, may fail this condition even if it otherwise meets the size and sector rules. Document the growth plan and the use of funds carefully, because HMRC considers this condition specifically when reviewing advance assurance requests and compliance statements.

Apply for advance assurance before fundraising

Advance assurance is an optional but widely used HMRC process where a company submits its business plan, financial information, intended use of funds and investor details to get an indication of whether a proposed investment would qualify, before money changes hands. Many investors expect advance assurance before committing funds, because it reduces (though does not eliminate) the risk that relief is later refused.

Advance assurance is not a guarantee; the compliance statement submitted after the investment is actually made is the formal claim, and HMRC can still refuse relief if the actual investment or company position differs materially from what was described in the advance assurance request.

1. 1

   Prepare a business plan, financial forecasts and group structure showing how the company meets the scheme conditions.

2. 2

   Identify the proposed investors and confirm they are not connected to the company in a disqualifying way.

3. 3

   Submit the advance assurance application to HMRC with supporting documents.

4. 4

   Share the advance assurance outcome with prospective investors as part of the fundraising process.

5. 5

   Complete the investment on the terms described, since material changes can undermine the assurance given.

File the compliance statement after the investment

After shares are issued and, for SEIS, after the company has carried on the qualifying trade for a minimum period (or spent a set proportion of the money raised, depending on the current rules), the company submits a compliance statement to HMRC (form SEIS1 or EIS1). HMRC then issues compliance certificates that the company passes to investors, who use them to claim relief on their own tax returns.

Filing the compliance statement too early, before the qualifying conditions are met, risks rejection or later withdrawal of relief. Keep records of how funds raised were spent, since HMRC can check this against what was described in the advance assurance request and compliance statement.

Understand what investors actually receive

Investors can claim Income Tax relief on a percentage of the amount invested, subject to an annual investment limit per scheme and an overall Income Tax liability cap. There is also potential Capital Gains Tax exemption on disposal of the shares after a minimum holding period, and loss relief if the investment is later sold at a loss, which can offset some of the downside risk.

SEIS additionally offers a form of Capital Gains Tax reinvestment relief on gains reinvested into SEIS shares. These investor-side reliefs are a central reason investors are willing to take on early-stage risk, but they depend entirely on the company and the shares continuing to meet the qualifying conditions, often for several years after investment.

• Income Tax relief at a percentage of the sum invested, within annual limits.
• Capital Gains Tax exemption on qualifying disposals after the minimum holding period.
• Loss relief that can reduce the net cost of a failed investment for the investor.
• SEIS-specific Capital Gains Tax reinvestment relief for reinvested gains.

Worked scenario: a pre-revenue startup raising an SEIS round

Illustrative scenario: a two-person software startup wants to raise its first external funding from angel investors. Before approaching investors, the founders check the company meets the SEIS age, size and trade conditions, prepare a growth-focused business plan addressing the risk-to-capital condition, and submit an advance assurance request to HMRC.

Investors commit funds once advance assurance is confirmed, shares are issued, and once the qualifying trading period condition is met the company files its SEIS1 compliance statement so HMRC can issue certificates. The founders keep a clear record of how the funds were spent, since the certificates and any future HMRC check rely on the company matching its described plans.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• GOV.UK: Seed Enterprise Investment Scheme (SEIS)
• GOV.UK: Enterprise Investment Scheme (EIS)
• GOV.UK: Apply for advance assurance for venture capital schemes

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.