Tax relief schemes for raising equity

Government schemes designed to encourage investment into early-stage businesses.

Government investment schemes

Legal and tax implications are a huge part of investment. Make sure you're aware of what you can qualify for - watch our video with finance specialist, Laurence Jamieson, as he talks you through what you should look out for.

Investors who want to make an equity investment into your company could take advantage of the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS).

These are government schemes designed to encourage investment into early-stage businesses.

Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme (SEIS) aims to encourage investment into seed-stage companies. In 2015-16 over 2,220 companies raised money through SEIS.

Investors who invest in SEIS-eligible companies receive income tax relief and capital gains tax relief.

Income Tax Relief

UK taxpayers who have bought shares in an SEIS-eligible business can receive 50% tax relief up to a total of £50,000 on a £100,000 investment per year.

Investors must hold the shares for three years to keep the relief.

Capital Gains Tax Relief 

If your investors gained SEIS income tax relief on your investment, no Capital Gains Tax will be due on the profit from the sale of their investment.

For your investors to be able to claim tax relief under SEIS, your company needs to meet certain conditions.

Your company cannot:

  • Be listed on a recognised exchange. The Alternative Investment Market (AIM) is not a recognised exchange for these purposes
  • Have more than 25 employees
  • Have more than £200k in gross assets
  • Have previously raised money through EIS or received investment from a Venture Capital Trust
  • Raise more than £150k investment via SEIS
  • Have been trading for more than two years
  • You company must also be independent of any parent companies. Any money you raise must be spent on your business within three years of the share issue

 

Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) is similar to SEIS but designed for larger, more established companies. In 2015-16 over 3,280 companies raised money through EIS.

Income Tax Relief

UK taxpayers who have bought shares in an EIS-eligible business can receive 30% tax relief up to a total of £300,000 on a £1 million investment per annum.

Investors must hold the shares for three years to retain the relief.

Capital Gains Tax Relief: disposal

If your investors gained EIS income tax relief on your investment, no Capital Gains Tax will be due on the profit from the sale of their investment.

For your investors to be able to claim tax relief under EIS, your company needs to meet certain conditions.

Your company cannot:

  • Be listed on a recognised exchange. AIM is not a recognised exchange for these purposes
  • Have more than 250 employees
  • Have more than £15m in gross assets, and no more than £16m immediately after the new share issue
  • Have previously raised money through EIS or received investment from a Venture Capital Trust
  • Have been trading for more than seven years (10 years for knowledge intensive companies)
  • Raise more than £5m per annum and £12m (£20m for knowledge intensive companies) in total

Your company must also be independent of any parent companies. Any money you raise must be spent on your business within two years of the share issue.

It's also important that your company’s trade cannot be in an excluded activity, which includes property development, farming, leasing.

Find out if your company's trade would qualify for EIS support on GOV.UK

How to apply

Check you're eligible

Find out if your company could apply for SEIS on GOV.UK

Find out if your company can use the EIS on GOV.UK 

Submit an advanced assurance application 

Your company can receive advance assurance that it and its proposed share issue are SEIS / EIS eligible by submitting an EISAA form to the Small Company Enterprise Centre (SCEC).

If you receive a negative response, you should advise your prospective investors and rectify any problems with your applications.

Once you've received your investment, you need to submit an SEIS1 or EIS1 form to the SCEC.

Your company must have been trading for at least four months before you submit the EIS1. If your application is approved, you will be sent an SEIS2 / EIS2 for the business. You will also be sent SEIS3 / EIS3 forms for your investors which enable them to claim their tax relief.

 

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Disclaimer

This guide was written by our investment team at the Scottish Investment Bank who work with Scottish businesses and UK and international investors.