Knowledge Base: SEIS/EIS Guide

This article includes:

• What is SEIS
• What is EIS
• SEIS vs EIS: Key Differences
• Eligibility Criteria for SEIS
• Eligibility Criteria for EIS
• Investor Eligibility & Connection Rules
• What Can a Company Use SEIS and EIS Funding For?
• How to Apply for SEIS and EIS Advance Assurance
• Required Documents for (S)EIS Application
• How long does it take to get approval for Advance assurance?
• Raising SEIS & EIS simultaneously
• Compliance & Post-Round Obligations
• Changing from SEIS to EIS
• Maintaining (S)EIS Eligibility for Investors
• Investor benefits & worked examples
• FAQ's

What is SEIS?

The Seed Enterprise Investment Scheme (SEIS) is designed for very early-stage UK companies. It helps startups attract investors by offering generous tax breaks, reflecting the higher risk of backing young businesses.

Key features:

• Company trading for under 3 years

• Lifetime fundraising cap £250,000

• Investor limit £200,000 per tax year

• Up to 50% income tax relief on investment amount

• Potential CGT reinvestment relief on half of other gains

• Loss relief and inheritance tax benefits

What is EIS?

The Enterprise Investment Scheme (EIS) supports slightly more established businesses seeking growth capital.

Key features:

• Company trading for under 7 years from first commercial sale (10 years for Knowledge-Intensive Companies – KICs)

• Annual fundraising cap £5m; lifetime £12m (higher for KICs)

• Investor limit £1m per tax year (£2m for KICs)

• 30% income tax relief, CGT deferral, loss relief, and IHT benefits

SEIS vs EIS: Key Differences

Both SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) aim to encourage investment in high-risk, high-potential UK companies by offering significant tax benefits. However, they differ in the types of companies they cover and the level of tax relief they provide. Here's a breakdown of their differences:

SEIS is more suitable for investors looking to back very early-stage companies with high growth potential but higher risks. It offers higher tax relief (50%) but applies to smaller investments and earlier-stage businesses.

EIS is aimed at medium-sized startups that are past their initial launch but still need capital for growth. It offers lower tax relief (30%) but allows for much larger investments and applies to more established companies.

Both schemes provide excellent tax incentives and are designed to support UK entrepreneurship, with SEIS focusing on high-risk, early-stage investments and EIS supporting companies that are in the growth phase.

Eligibility Criteria for SEIS

To be eligible for SEIS funding, a company must:

• Be established in the UK: The company must be incorporated and have a permanent establishment in the UK.

• Engage in a new qualifying trade: The company must conduct a new business activity that qualifies under SEIS guidelines. Most trades qualify, except certain restricted activities (see below).

• Trading history: The company must have been actively trading for less than three years.

• Gross assets: The company must have less than £350,000 in gross assets at the time of investment.

• Employee limit: The company must have fewer than 25 full-time employees.

• Not a public company: It cannot be listed on a recognised stock exchange.

• No controlling interest: The company cannot be controlled by another company. Similarly, it cannot control another company, except for qualifying subsidiaries.

• Previous funding: The company must not have already received any funding under the EIS scheme before receiving SEIS funding.

Eligibility Criteria for EIS

To be eligible for EIS funding, a company must:

• Be established in the UK: Similar to SEIS, the company must be based and operating in the UK.

• Engage in a qualifying trade: The company must conduct a qualifying business activity, excluding certain restricted activities (see below).

• Trading history: The company must have been trading for less than seven years.

• Gross assets: The company must have less than £15 million in gross assets at the time of investment.

• Employee limit: The company must have fewer than 250 full-time employees.

• Not a public company: The company cannot be traded on a recognised stock exchange.

• No controlling interest: The company cannot be controlled by another company and cannot control other companies, except for qualifying subsidiaries.

Both schemes are intended for UK-based companies involved in qualifying trades, with some restrictions on the types of businesses that can apply.

Investor Eligibility & Connection Rules

To qualify for SEIS or EIS tax reliefs, investors must meet a few key conditions:

• UK Taxpayer: Reliefs are only available to UK taxpayers. Non-UK investors can still invest, but won’t receive the tax benefits.

• Shareholding Limit: An investor (plus close family/associates) cannot own more than 30% of the company.

• Employment: Investors cannot be employees, but they can be directors. SEIS allows unpaid directors; EIS allows paid directors too.

• Holding Period: Shares must be held for at least 3 years. Selling early means losing the relief.

• Ordinary Shares: Investors must buy new, ordinary shares paid for in cash. No preference rights or pre-arranged exits are allowed.

What Can a Company Use SEIS and EIS Funding For?

SEIS and EIS funds must be used in ways that genuinely support the growth and development of the business. HMRC is very clear that the schemes are not meant to subsidise low-risk investments or personal enrichment — the money should go directly into building the company.

Eligible Uses

• Working capital: covering day-to-day costs needed to keep the business running and growing.

• Hiring staff: salaries, training, and expanding the team.

• Product development: research, prototyping, testing, and launching new products/services.

• Marketing and sales: campaigns, customer acquisition, and entering new markets.

• Equipment and technology: buying assets that directly support the company’s trade.

Restricted Uses

Funds cannot be used for:

• Repaying existing loans or repurchasing shares.

• Acquiring another business.

• Activities excluded under SEIS/EIS (like financial services, property development, energy generation, etc.).

Spending Timeline

• Funds raised must be used within 2 years of the share issue, and specifically for qualifying business activities.

• If this condition is not met, investors could lose their tax relief.

See HMRC’s detailed guidance on the spending timeline

How to Apply for SEIS and EIS Advance Assurance

SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) are vital for attracting early investment in UK companies. Many investors prefer to back companies that have received Advance Assurance from HMRC, which confirms their eligibility for tax relief. Here’s a step-by-step guide to applying for SEIS or EIS Advance Assurance.

1. Check Eligibility

SEIS:

• Trading for less than three years.
• Fewer than 25 employees.
• Less than £350,000 in gross assets.

EIS:

• Trading for less than seven years.
• Fewer than 250 employees.
• Less than £15 million in gross assets.

2. Prepare Documentation

• Business Plan/Pitch Deck: Outline your business model, vision, and strategy.
• Financial Forecasts: Include projected income, expenses, and growth.
• Details of Previous Funding: Mention any prior investments received.
• Unique Taxpayer Reference (UTR) Number: Your company’s UTR is needed for the application.

3. Apply for Advance Assurance

• Application Submission: Although Advance Assurance is not mandatory, it is highly recommended. You can apply through HMRC’s online service.
• Supporting Documents: Submit documents prepared for investors, specific forms required by HMRC, and any supporting documentation (e.g., company accounts and incorporation documents).

4. Submit a Compliance Statement

After successfully raising investment, submit a compliance statement using the SEIS1 or EIS1 form to HMRC to confirm your company meets all necessary requirements.

5. Issue Shares

Once you receive HMRC approval, you can issue shares to your investors. Ensure compliance with all regulations to maintain tax relief for your investors.

6. Maintain Compliance

Continue to meet the scheme’s requirements for at least three years post-investment to keep the tax reliefs valid.

Required Documents for (S)EIS Application

Your SEIS or EIS application will consist of four main categories of documents:

1. Investor-Focused Documents:

• Pitch deck or business plan.
• Minimum Three-year financial forecasts.

2. HMRC Forms:

Complete the necessary forms as part of your application submission.

3. Supporting Documentation:

• A copy of your latest accounts.
• Memorandum of incorporation and other legal documents.

4. Company Documentation:

• Articles of association.
• Subscription agreements and shareholders’ agreements

Applying for SEIS and EIS Advance Assurance involves verifying eligibility, preparing thorough documentation, submitting the application through HMRC, and ensuring compliance post-investment. Advance Assurance is a valuable step that enhances investor confidence and can significantly aid in fundraising efforts.

How long does it take to get approval for Advance assurance?

The approval time for SEIS and EIS Advance Assurance can vary. Generally, it takes between 15 and 45 working days for HMRC to process and approve an application. However, some applications might be approved faster, especially if all required information is provided accurately and in the preferred format.

To ensure a smooth process, it’s recommended to apply for Advance Assurance at least one to two months before you start approaching investors.

Raising SEIS & EIS simultaneously

It is possible to raise both SEIS and EIS in the same funding round, but there are important sequencing rules to follow:

• SEIS first: you can raise up to £250,000 under SEIS before moving onto EIS.

• EIS afterwards: any funding above the SEIS limit can qualify for EIS.

• Timing matters: SEIS shares must be issued and dated before EIS shares. You cannot issue both on the same day.

This approach, often called a dual round, is attractive because it maximises tax reliefs for investors while keeping the process efficient for founders.

For a more detailed breakdown of the process see our guide: How to Raise SEIS and EIS in the Same Round – A Dual Round

Compliance & Post-Round Obligations

Raising SEIS/EIS is only the first step — the real responsibility begins after the round closes. Companies must follow strict rules to ensure investors keep their tax reliefs.

At a high level, here’s what founders need to know:

• Ordinary shares only: you can’t issue preference shares or give investors guaranteed returns.

• Funds must be spent within 2 years: and only on genuine growth activities (not debt repayment or disallowed trades).

• 3-year rule: the company must continue trading in a qualifying activity, and investors must hold shares for at least 3 years.

• Compliance statement: once shares are issued, the company submits an SEIS/EIS1 form to HMRC. Only after HMRC approves can investors receive their SEIS3/EIS3 certificates to claim relief.

If a company breaches the rules — for example, by pivoting into a non-qualifying trade or returning funds to investors — the tax reliefs can be withdrawn, leaving investors frustrated and damaging the founder’s reputation.

Changing from SEIS to EIS

A business can transition from the Seed Enterprise Investment Scheme (SEIS) to the Enterprise Investment Scheme (EIS) by raising its initial investment with SEIS first, and then moving to EIS if it meets all eligibility requirements. A business can't raise its first funds with EIS and then switch to SEIS for a second round.

If your business is outside the eligibility criteria of SEIS – for example it is older than three years or with more than 25 employees – you must go the EIS route. Alternatively, if your company qualifies for SEIS, but you need more than £250,000, you could first go with SEIS and then with EIS.

Maintaining (S)EIS Eligibility for Investors

Maintaining (S)EIS eligibility is crucial for your investors. Here’s how to avoid common pitfalls:

Key Considerations

1. Time Limits:

• SEIS: Must begin trading within three years of share issuance.
• EIS: Similar rules apply but may differ in specifics.

2. Investment Sequence:

• Ensure all SEIS shares are issued before any EIS or Venture Capital Trust (VCT) shares.

3. Dual Fundraising:

• Avoid issuing SEIS and EIS shares on the same day. Communicate clearly with investors to prevent mix-ups.

4. Use of Funds:

• You can use SEIS funds to repay a director’s loan, but not EIS funds.

5. Holding Period:

• Shares must be held for a minimum of three years to maintain tax benefits.

6. Spending Investment:

• SEIS: Funds must be spent within three years.
• EIS: Funds should be spent within two years from issuance.

7. Changing Business Activities:

• Ensure that no more than 20% of activities fall under excluded categories.

8. Ownership Limits:

• An (S)EIS investor can hold a maximum of 30% of shares, including economic and voting rights.

9. Subsidiary Considerations:

• Creating or restructuring subsidiaries can affect eligibility. Seek expert advice.

10. Director Transactions:

• Shares can be sold to an individual before they become a director, ensuring compliance with ownership rules.

11. Share Preferences:

• Shares must not have preferential rights over dividends or assets. Ensure restructured shares comply with this rule.

12. Investment Sources:

• EIS benefits are only available if the investor has not previously received non-VCT shares.

You should regularly review compliance with (S)EIS rules to protect your investors' tax benefits. Clear communication and strategic planning are essential to avoid jeopardizing eligibility.

Investor benefits & worked examples

For many first investors in a startup — often friends or family — these schemes can dramatically reduce risk and boost returns. The UK Government uses SEIS and EIS to reward investors for taking on the high risk of backing early-stage companies.

The Three Big Benefits

1. Income Tax Relief

• SEIS: Claim back 50% of your investment from your income tax bill.

• EIS: Claim back 30%.

• Can also “carry back” to the previous tax year.

2. No Capital Gains Tax (CGT) on Exit

• If shares are held for 3+ years and the company stays compliant, any profit is 100% tax-free.

3. Loss Relief

• If the company fails, you can offset the actual loss (investment minus income tax relief) against your income tax or capital gains tax.

• Works even for higher-rate taxpayers, reducing downside risk.

Example: £100k investment → £5m exit

Key takeaway: With SEIS/EIS, you pay no CGT on the profit — and you get back 30–50% of your investment immediately via your tax return.

Example: £100k investment → Loss

Assuming investor is a 45% income tax payer.

Key takeaway: Loss relief means even in a total failure, an SEIS investor’s maximum exposure is often ~27% of the original amount.

Why This Matters for Founders

• Early-stage investors (especially friends/family) often don’t realise they can protect themselves in this way.

• Explaining these benefits clearly can unlock funding from people who might otherwise feel the risk is too high.

• Founders should be able to say:

“Even if the company fails, your maximum loss could be less than half — and if it succeeds, your gains are tax-free.”

FAQ's

Are Capital Gains Tax applicable from proceeds of all shares I own on an exit, or just the shares obtained from and S/EIS investment?

Only the shares covered by SEIS would be CGT exempt. The trick is to get SEIS in all of your shares, of course.

Can you ‘invest’ in your own business and benefit from SEIS Tax relief on a personal tax return?

The short answer is no - you can’t. And, whereas Entrepeneur’s relief used to give you a 10% capital gains tax rate on the first £10m you make selling your shares as a founder, that has now been slashed to the first £1m only.

There is something you can do though:

Your siblings, friends or in-laws can invest in your startup - these are the few associates of yours that can qualify, as spouses, parents and children cannot. When asking associates of yours if they’d like to invest, be careful not to agree to something reciprocal. You cannot use SEIS to invest in something in return for receiving investment.

One of the more elegant use cases for SEIS is to bring additional directors into the business because they can invest in the business under SEIS. As long as they are investing a suitable amount (and there’s some interesting challenges from HMRC in this area), but if they're investing say £2000, or a sum that can be meaningfully used by the business, as long as they're not an employee or director already it's fine. Our CEO and founder Sam Simpson, actually did this in his previous company whereby Sam and his co-founders all invested into the business under SEIS in order to give the company some working capital to get it moving.

We have had our Advance Assurance for a few years but not used any of it - does it have an expiry date to it?

No, as long as you remain compliant with the rules, it doesn’t go stale.

Does SEIS have a time limit?

Once you begin trading, a three-year countdown starts. However, if you're not yet trading, this clock hasn’t started, meaning companies with substantial R&D phases can be nearly a decade old and still qualify for SEIS, provided they meet the necessary criteria.

Once trading begins, there’s no pause; the timeline is fixed. SEIS eligibility also depends on factors like the number of employees, assets, and company age. These requirements are assessed only at the moment you secure investment.

If we launched an MVP in 2021 (before obtaining AA) that generated a small amount of revenue but hasn’t been traded since, how does that affect the 3-year trading period?

Once trading has started, the 3-year period begins, and there’s no way to "pause" it. Even if trading was minimal or infrequent, the clock starts from the first revenue-generating transaction.

How is ‘trading’ defined? Does it only involve generating revenue? For instance, if a consumer app initially focuses on user growth with a free product, does that mean trading hasn’t started?

Trading generally begins when you make an effort to sell or generate revenue. If you’re simply distributing a product for free and not attempting to sell or monetize it, this usually wouldn’t be considered trading.

Is it necessary to activate Corporation Tax to qualify for Advance Assurance?

No, the only requirement is to have a UTR (Unique Taxpayer Reference).

How soon can I start receiving investment funds once SEIS approval comes through?

You don’t actually need SEIS approval to start receiving funds—investors can claim the tax benefits retrospectively. However, many investors will want to see the approval before committing.

Why would an investor want to invest through their company instead of personally benefiting from SEIS/EIS?

Some investors may not fully understand SEIS/EIS and believe investing through their company is a better approach. In most cases, it's an education issue rather than anything suspicious. Investing through a company might help reduce corporate tax liability, but it means missing out on the personal tax benefits of SEIS/EIS.

Can SEIS/EIS cause issues if investors want to exit early?

SEIS/EIS investors must hold their shares for at least three years to retain tax benefits. If an investor wants to "tidy up the cap table" or divest early, SEIS/EIS rules can make it difficult. However, founders should generally avoid facilitating exits within three years, as it can be complex.

Do all founders need to be directors in order to apply for Advance Assurance?

No, HMRC does not require all founders to be appointed as directors in order to apply for Advance Assurance, however, keep the following in mind:

1. The application must be authorised and submitted by one of the company’s directors
2. Even if not all founders are directors, include them in your pitch deck to showcase the full strength and experience of your team
3. Ensure the director information in your pitch deck matches what’s listed on Companies House.