What’s The Difference Between SEIS and EIS?

It has always been a challenge to get a new company up and running. Along with this, you need to find a team, a property and bring your idea to life while you also need to find funds. Investors are always wary of entrepreneurs and their ideas that are untested. This is down to the fact that 29% of UK start-ups fail in the first year. So, the government has aimed to solve this problem by introducing the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

Both schemes are designed to offer investors attractive tax breaks, encouraging them to invest in new UK businesses.

SEIS and EIS – Aren’t They the Same?

No, they are not. While both schemes have been designed to attract investment to small, young companies in the UK, there are some big differences between them. It is also important for entrepreneurs to understand that the schemes are not designed to raise venture capital as they are incentives. In both schemes, the government doesn’t provide cash but instead, they offer tax relief to investors who purchase shares in those businesses that qualify. This should result in businesses finding the investment that they require easily.

SEIS

This is about finding investment for companies in the early stages and those that have less than two years in business and fewer than 25 employees. Investors can invest as much as £100,000 per tax year while SEIS businesses can receive no more than £150,000 in funding.

EIS

This is designed for those businesses that are more established and have up to seven years of trading and a maximum of 250 employees. Both individual and corporate investors have the scope to invest as much as £1 million in each tax year while the company can receive up to £5 million per tax year and no more than a total of £12 million. Corporate investors in EIS will not receive tax relief on their investment.

Knowledge Intensive Companies will have different EIS criteria as these are companies that have high research and development costs. It is possible for these companies to receive funding within ten years of trading and can have as many as 500 employees. Furthermore, they can also receive up to £10 million each tax year and a funding total of £20 million.

SEIS Eligibility

If you want to participate in SEIS then you will need to meet the following criteria:

• Less than two years trading
• Business or trade must qualify
• A UK established business
• At the time of share issue, must not be trading on a known stock exchange
• At the time of share issue, you must not be planning to become a quoted company or subsidiary of one
• Must not be in control of another company
• Must not be controlled by another company
• Gross assets must not total to more than £200,000
• Must not be a member of a partnership
• Fewer than 25 full-time equivalent employees

EIS Eligibility

If you want to participate in EIS then you will need to meet the following criteria:

• Be a new business or have less than seven years of trading
• Trade or business must qualify
• A UK established business
• At time of share issue must not be trading on a recognised stock exchange
• Must not have plans to become a quoted company or subsidiary of one
• Must not have control of another company
• Must not be under the control of another company or have over 50% of shares controlled by another company
• Gross assets must not total more than £15 million
• Fewer than 250 full-time employees

What Can the Funds Be Used For?

There are rules that accompany raised funds. For SEIS funds, they must be spent within three years while EIS funds must be spent within two years. Along with this, the funds must be spent on a qualifying trade, preparation to carry out a qualifying trade or research and development that is likely to lead to a qualifying trade.

Furthermore, SEIS investment cannot be used to purchase shares although they can be used to purchase shares in a qualifying 90% subsidiary that uses the money for business activity that qualifies. Additionally, EIS investments can not be used to purchase shares in another company.

It can prove challenging to meet the requirements of SEIS or EIS and any mistakes can lead to significant problems. Therefore, businesses that are looking to raise funds should seek professional advice and guidance.

Interested in learning more about how to invest in a UK Business while getting a tax-break?

Book your free initial consultation with one of our advisers to learn about any SEIS vs. EIS opportunities.

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