The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are government incentives designed to encourage investment in small or medium-sized companies.
These schemes act as a safety net for investors, offering them significant tax relief in return for their financial backing in early stage-businesses.
It really is a win-win situation for both investors and companies, so why doesn’t everyone do it? Let’s take a look at the scheme’s eligibility below:
In order to qualify for SEIS or EIS, your company must carry out a qualifying trade. Most companies do, but there are some exceptions.
If over 20% of your trade involves these areas, you do not qualify:
Running a hotel
Running a nursing home
Generation of energy, such as electricity and heat
Production of gas or other fuel
Banking, insurance, debt or financing services
If your company carries out research and development (R&D) that will lead to a qualifying trade, you’ll be eligible for SEIS/EIS.
It’s important to note that even if a company carries out a qualifying trade, they must not have been listed on any recognised stock exchange (apart from AIM), or they’ll become ineligible.
Further Requirements for SEIS/EIS
There are also a number of formal requirements that companies have to meet to qualify for SEIS/EIS:
Companies must have under £200,000 in gross assets prior to funding to qualify for SEIS, and under £15 million to be eligible for EIS.
For SEIS, companies must have under 25 employees. For EIS investment, the limit rises to 250 employees.
To be eligible for SEIS, a company must not have been trading for more than 2 years, and it must be no more than 7 years since your first commercial sale for EIS.
You don’t have to be a UK company to qualify, but must have a permanent establishment in the UK. Significant levels of business must be conducted in the UK in order to qualify.
Knowledge Intensive Companies (KICs)
The above requirements apply to most companies, but for Knowledge Intensive Companies (KICs), the rules are slightly different.
KICs are innovation-focused, carrying out significant levels of research and development. Because of this, the government grants them greater allowances:
KICs can receive up to £10 million in investment per year, with a lifetime limit of £20 million.
They can receive EIS investment up to 10 years after they begin trading rather than 7 years like other companies.
They can have up to 500 employees and still qualify for EIS - unlike the 250 limit for EIS and 25 for SEIS.
There are still some requirements that stay the same for all companies – for example, even KICs must have a permanent UK establishment, and shouldn’t be trading on the stock exchange.
To be recognised as a KIC, your expenditure should be R&D focused, with at least 10% of expenditure being directed to research and development over 3 years. This helps to make sure that the most innovation-focused companies receive the funding required to carry out their R&D.
If you believe your company meets the SEIS or EIS requirements and you want more advice about how to get started, Jump Accounting is here to help.