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Information for Companies Seeking Finance

Our Guide Grow your business with the Enterprise Investment Scheme is available here. We hope you find it is useful.  More Guides available here

The first step is to obtain Advance Assurance from HMRC that your company, its trade and its shares qualify for EIS/SEIS purposes.  This is done by application to the Small Company Enterprise Centre (SCEC) on Form EIS/SEIS AA available here.

For more details of claiming Advance Assurance click here

Small Company Enterprise Centre (Admin Team)
Mid-size Business SO777
NE98 1ZZ

Tel: 0300 123 1083

Obtaining EIS/SEIS Relief

The purpose of the Advance Assurance is mainly to give potential investors some comfort that the company should qualify for EIS/SEIS relief based on the information provided to obtain the advance assurance.  However, this is not a guaranteed process since the company must comply with the rules during its qualifying period.

After 4 months trading (or immediately if the company has already been trading for 4 months), the company must submit a compliance statement on Form EIS1/SEIS1.  To download EIS1 form click here.  To download SEIS1 form click here.  A separate EIS1/SEIS1 form must be submitted for each date on which shares are issued.

Provided that all the conditions have been satisfied, HMRC will issue an EIS2/SEIS2 form to the company, confirming it is authorised to issue EIS/SEIS certificates and will supply sufficient EIS3/SEIS3 forms for each investor.  These forms should be completed and sent to the investor, who must then submit the form to his/her own tax inspector.  The relief may be given in the form of an adjustment to PAYE code, offset against self-assessment payments due or sometimes in the form of a rebate, depending on the timing and the individual’s circumstances.  There is a time limit for claiming EIS/SEIS relief and investors will want to claim their tax relief as soon as possible so companies should be diligent at filing EIS1/SEIS1 forms promptly.

Warning.   EIS/SEIS Advance Assurance is granted on the basis of “information provided”.  You should provide HMRC will all relevant information in order to ensure the integrity of the clearance and must remember that the company needs to comply throughout the three year qualifying period.

For full details of Claiming EIS Tax Relief click here…..

Does my Company Qualify for EIS/SEIS Relief?

HMRC publish guidance for investors and companies, which provides further information www.hmrc.gov.uk/eis/. For SEIS www.hmrc.gov.uk/seedeis/index.htm.  Most trades qualify although there are certain exceptions – please see the excluded activities on HMRC’s website http://www.hmrc.gov.uk/manuals/vcmmanual/index.htm.  However, whilst some excluded trades are clearly cut and dried such as property, some other activities do qualify although they would appear not to on first glance so it is worth consulting an experienced professional if you are in any doubt.   A company can carry on some excluded activities, but these must not be ‘substantial’ part of the company’s trade. HMRC take ‘substantial’ to mean more than 20 per cent of the company’s trading activities.

There are additional rules, summarised below and further details of which are set out at www.hmrc.gov.uk/eis/.  In addition, the company:

The rules regarding not being controlled by another company, qualifying subsidiaries and the company carrying on the trade must be met throughout the three year EIS qualifying period.  If they are not, then the investors will lose their reliefs.

The funds must be raised for growth and development of the business.  The funds cannot be used to acquire a trade or business, certain intangible assets or shares in another company.

There are a numbers of qualifying conditions that the relevant company must meet in order for it to issue shares under the SEIS including the following
further details of which are set out at www.hmrc.gov.uk/seedeis/index.htm.

The value of the company’s gross assets (or if the issuing company is a parent, the group gross assets) must not exceed £200,000 immediately before the shares are issued.

Raising Capital
The EIS Association does not engage directly in raising capital for companies although many of its members are actively involved in doing so.

Business Plan – a well thought out and clearly written business plan is necessary to attract an investor, whichever route to finance is taken.  HMRC will also want to see a business plan.  This is a major activity and will use up valuable management time.   However, it is worth doing well.  If you need to employ a third party to do this, make sure that such party has the necessary experience and track record to produce a document that will hold the attention of a sceptical investor (who will have seen several such plans before yours).  Always ask for references or case studies before hiring your professionals.

Generally companies seeking investment should consider various sources of capital, depending on the amount being sought. The suggestions below are not comprehensive but will act as guidance:

Remember always to be as prepared and articulate as possible when approaching potential investors.  The first impression is critical and it is rare to have an opportunity to try again if your plan is rejected.

Another source of useful information in respect of seeking capital investment is the British Private Equity & Venture Capital Association on 020 7492 0400 or www.bvca.co.uk.