Making use of SEIS in a new company by transferring existing IP from another company

This situation often arises when a company no longer qualifies for the Seed Enterprise Investment Scheme (SEIS) because it has been trading for over three years. To regain SEIS benefits, companies may consider incorporating a new entity. However, HMRC does not permit companies to simply "reset the clock" by forming a new company.

Key Considerations

The main challenge in this scenario is adhering to the ‘New Qualifying Trade’ requirement as outlined by HMRC here. If the new company is not engaged in a genuinely new trade, it may not qualify for SEIS.

Important Points:

• Trading Status: If the original company has already started trading, this can complicate matters. HMRC may consider consultancy work as "trading," even if your intellectual property (IP) is still in the pre-MVP stage.

• New Qualifying Trade: To qualify for SEIS in the new entity, you must demonstrate that the new company is undertaking a "New Qualifying Trade."

Demonstrating a 'New Qualifying Trade'

To meet HMRC's requirements, you need to show that the IP being transferred to the new company is "foundational IP"—something that still requires significant development to become monetisable.

• Foundational IP: This refers to IP that has not yet been monetised and cannot be easily commercialised in its current form. If the IP has already generated revenue, it may be seen as a "continuation of trade," making the new company ineligible for SEIS.

The Process for Transferring IP

If you decide to proceed, follow these steps to transfer the IP and potentially qualify for SEIS:

1. Incorporate a New Company: Set up a new entity to house the transferred IP.
2. Transfer the IP: Conduct a one-way transfer of the IP from the original company to the new company for a nominal amount (e.g., £1), ensuring that no royalties or future payments are due to the original company. This ensures all IP resides in the new company.
3. Demonstrate 'Foundational IP': Clearly show HMRC that the IP is not yet monetised and requires further development to be market-ready.
4. Submit an advance assurance application: File an advance assurance application with HMRC in the name of the new company. This step is crucial for attracting investors, as they often seek confirmation of SEIS eligibility and an IP assignment and ensures you are on the front foot with HMRC. Follow our process here