Wednesday, 11 January 2012

The Seed Enterprise Investment Scheme (SEIS)

There is now some concern amongst management teams thinking about raising equity funding, about whether or not they ought to go ahead now under the existing EIS scheme or wait for the new SEIS scheme.
The SEIS legislation is still in draft form and will only apply to share issues made on or after April 6th 2012. If the legislation remains in its current form, an investor could avoid paying tax on 28% on an existing capital gain and get income tax relief worth a further 50% of the investment, meaning that the net cost to the investor is a mere 22% of the amount invested.
There will be, however, some tight limits on SEIS. The company must be less than 2 years old when the investment is made, have a qualifying trade, have less than 25 employees and have gross assets of under £200,000. There are also restrictions on an investor having any previous connection with the company, and also they may not own more than 30% of the company to qualify.
There is also a maximum that a company can raise under SEIS, this is £150,000, and so if you want to raise more than £150,000, you will need to consider the timing and interaction of SEIS and EIS. It is likely that there will be a new requirement for getting EIS relief that a minimum of 75% of any money raised under SEIS has been spent before EIS can be given.
Ideally, if you can wait until April, you may want to raise £150,000 under SEIS, spend it on the business and then follow that up with EIS funding.

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