For startups considering raising capital, understanding the nuances of funding schemes like the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) is crucial. 2023 brought exciting changes to these schemes, enhancing opportunities for both companies and investors in the UK. This blog aims to demystify SEIS and EIS, outlining their benefits and the recent changes that make them even more attractive.
What is SEIS?
The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative designed to help new, early-stage companies raise equity finance. It offers tax reliefs to individual investors who buy new shares in these companies. Initially introduced in 2012, SEIS has been a cornerstone for many startups, helping them achieve initial funding.
Key Changes to SEIS
Increased Investment Ceiling: Companies can now raise up to £250,000 (previously £150,000).
Expanded Eligibility: Eligibility has been extended to companies with a trading history of up to 3 years (previously 2 years) and gross assets up to £350,000 (previously £200,000).
Enhanced Investor Limits: Investors can now invest up to £200,000 per tax year, doubling the previous limit of £100,000.
Benefits for Companies Under SEIS
Access to More Capital: The increased funding limit helps startups secure vital early-stage financing.
Extended Timeframe for Eligibility: Companies have a longer period to benefit from SEIS, aiding in their initial growth phase.
Attracting a Wider Investor Base: Higher investor limits mean more potential funding from individual investors.
What is EIS?
The Enterprise Investment Scheme (EIS) is aimed at helping more established, but still high-risk companies to raise finance by offering tax reliefs to investors who purchase new shares in these businesses. EIS is suitable for companies that have outgrown the SEIS but still require significant investment to scale.
Key Changes to EIS
Extension Beyond 2025: The EIS, initially set to conclude in April 2025, has been extended to April 2035
Increased Investment Limits: Individuals can invest up to £1 million annually (or £2 million for knowledge-intensive companies), while there's no specific limit for corporate investors.
Benefits for Companies Under EIS
Higher Funding Potential: Companies can raise significant capital to scale their operations.
Broader Scope for Investment: EIS's suitability for slightly larger and older companies than SEIS widens the scope for investment.
Benefits for Investors Under EIS
Substantial Investment Opportunities: Higher investment limits provide more room for significant investments.
Diverse Portfolio Expansion: Investing in EIS-eligible companies diversifies an investor's portfolio towards growth-oriented businesses.
Comparing SEIS and EIS
While both schemes are designed to stimulate economic growth by encouraging investment in startups and high-risk companies, they cater to different stages of a company's life cycle. SEIS is tailored for very early-stage companies, offering higher tax reliefs to offset the increased risk, while EIS is geared towards companies in a slightly later stage of development, typically requiring more substantial investment.
Aspect | SEIS (2023/2024) | EIS (2023/2024) |
|---|---|---|
Maximum Investment for Companies | £250,000 | £5 million annually, £12 million total (£20 million for KICs) |
Investor Tax Relief | 50% Income Tax Relief | 30% Income Tax Relief |
Maximum Investor Investment (Per Tax Year) | £200,000 | £1 million (£2 million for KICs) |
Company Age Limit | Up to 3 years | Less than 7 years (10 for KICs) |
Gross Assets Limit for Companies | Up to £350,000 | Up to £15 million |
Full-time Equivalent Employees Limit | Less than 25 | Less than 250 (500 for KICs) |
Carry Back Relief Availability | Yes, to the previous tax year | Yes, to the previous tax year |
Capital Gains Tax Exemption | Yes, on gains reinvested within SEIS | Yes, on disposal of shares after 3 years |
Tax Benefits for Investors
Both schemes offer attractive tax reliefs to investors. SEIS provides up to 50% tax relief on investments, while EIS offers 30%. Additionally, both schemes offer capital gains tax relief on profits earned from the investment and loss relief if the company fails.
The Road Ahead
The enhancements to SEIS and EIS in 2023 signal the UK government's commitment to fostering a vibrant startup ecosystem. For companies, these changes mean greater access to essential early stage funding, and for investors, they open up more opportunities to support innovative businesses while benefiting from significant tax advantages.
Conclusion
The SEIS and EIS schemes are more than just funding mechanisms; they are vital for driving the UK's innovative startup landscape. These changes not only facilitate greater funding opportunities for emerging companies but also offer compelling incentives for investors. As the UK continues to nurture innovation and entrepreneurship, SEIS and EIS remain pivotal in this journey.
Pinnacle Global Advisory is here to help
With the recent enhancements to the SEIS and EIS schemes, there's never been a better time to explore these options. At Pinnacle Global Advisory, we specialise in helping startups like yours understand and apply for these schemes effectively. With expert guidance associated with SEIS and EIS, we're committed to providing tailored advice that aligns with your business's unique needs.
Contact us today to:
Receive a personalised consultation on how SEIS and EIS can benefit your startup.
Get expert guidance on the application process, ensuring compliance and maximising your chances of success.
Understand the intricate details of these schemes, including recent changes and how they can impact your funding strategy.
Explore additional financial planning and advisory services to support your business's growth.
Don't miss out on the opportunity to elevate your startup with optimal funding. Reach out to Pinnacle Global Advisory and take the first step towards unlocking the potential of SEIS and EIS for your business.
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