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New Seed Enterprise Investment Scheme

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Friday February 10, 2012 at 9:00am
Investors and start-ups take note. From 6 April 2012, the Seed Enterprise Investment Scheme (SEIS) offers tax breaks to individuals investing in small companies. In 2012/13, these tax breaks could be worth 78% of the investment.

SEIS conditions

SEIS builds on the success of the Enterprise Investment Scheme (EIS). The government's idea is to help riskier start-up companies raise the finance they need.

In order to qualify:

  • Companies must have 25 employees or fewer
  • Their assets must not exceed £200,000
  • Companies may already exist or be about to start a new venture

The investment must be in the form of share subscriptions. The Finance Bill 2012 defines eligible shares.

SEIS income tax relief

SEIS income tax relief has a number of key principles:

  • Individual investors with a stake of less than 30% in a SEIS company can claim
  • Investors can include a company's directors
  • Investors can be in any UK tax bracket to qualify for relief
  • The maximum annual investment is £100,000 for each investor
  • Companies can carry back any amount unused at the end of the year to the previous year
  • The overall tax-favoured investment limit for a company is a cumulative figure of £150,000

The SEIS income tax relief is 50% of the amount invested.

SEIS exemption for capital gains tax

Under SEIS, investors are exempt from capital gains tax (CGT) on eligible shares. They are also exempt from any CGT from the disposal of assets in 2012/13. But they must reinvest any gains in the same year.

Tax relief and CGT exemption claims

Individual investors must claim the SEIS tax relief and CGT exemption. The companies involved do not face any extra admin procedures.

Government forecast for SEIS

Under SEIS, the government hopes investors will put money into 300 or so small start-up companies in 2012/13. There are no predictions beyond this, although the government intends to run SEIS until 2016 when it will evaluate the scheme's success.

The above details are the basic facts about SEIS. From a company's viewpoint, it could well provide an opportunity to acquire essential finance. With SEIS backing, and a degree of success, funds from other sources could follow.

SEIS investors stand to benefit from significant tax advantages. But an investment works only if a company grows and prospers. Investors still need to judge the likelihood of a start-up surviving.

Andy Parker
Chartered Accountant and Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here