Find out how the scheme works, including issuing shares and raising money and how to submit a compliance statement.
The Seed Enterprise Investment Scheme (SEIS) is one of 4 venture capital schemes ― check which venture capital scheme is appropriate for you.
How the scheme works
- offers tax reliefs to individual investors who buy new shares in your company
- helps your company to raise money when it’s starting to trade
You can receive a maximum of £250,000 through Seed Enterprise Investment Scheme. This will:
- include any other de minimis state aid received in the 3 years, up to and including the date of the investment
- count towards any limits for later investments through other venture capital schemes
There are various rules you must follow so your investors can claim and keep the Seed Enterprise Investment Scheme tax reliefs relating to their shares.
Tax reliefs will be withheld, or withdrawn, from your investors if you do not follow the rules for at least 3 years after the investment is made.
Before you apply
You’ll need to check:
- that your company can use the scheme
- what you can do with money raised
- if this is a new qualifying trade
- you meet the risk to capital condition
Check that your company can use the scheme
Your company can use the scheme if it:
- carries out a new qualifying trade
- is established in the UK
- is not trading on a recognised stock exchange at the time of the share issue
- has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
- does not control another company unless that company is a qualifying subsidiary
- has not been controlled by another company since the date of your company being incorporated
Your company and any of its subsidiaries must:
- not have gross assets over £350,000 when the shares are issued
- not be a member of a partnership
- have less than 25 full-time equivalent employees in total when the shares are issued
You cannot use the Seed Investment Enterprise Scheme, if you’ve received investment through the Enterprise Investment Scheme (EIS) or from a venture capital trust (VCT).
What you can do with money raised
The money raised by the new share issue must be spent within 3 years of the share issue. You must spend the money on either:
- a qualifying trade
- preparing to carry out a qualifying trade
- research and development that’s expected to lead to a qualifying trade — such as a project to make an advance in science or technology
You cannot use the investment to buy shares, unless the shares are in a qualifying 90% subsidiary that uses the money for a qualifying business activity.
Check if this is new qualifying trade
If your company is already carrying out a qualifying trade, it must not have been carried out for more than 3 years by either:
- your company
- any other person who then transferred it to your company
Your company, or any qualifying subsidiary, must not have carried out any other trade before you started the new trade.
Your company’s trade must be treated as a commercial business with the aim of making profits. However, your trade will not qualify if it consists mostly of an excluded activity.
Meeting the risk to capital condition
The investment in your company must meet the risk to capital condition. This means:
- your company must have the intention to grow and develop its trade over the long term — for example, you’ll use the investment to grow things like your revenue, customer base and number of employees
- the investment should be a risk to the investors’ capital
The growth and development of your company should be permanent and not rely on the investor’s continued support.
The investment should carry a risk that the investor will lose more capital than they are likely to gain as a net return.
HMRC will not consider the maximum return an investor could get if your company is successful, because this cannot be guaranteed.
The net return includes:
- income from dividends, interest payments and other fees
- capital growth
- upfront tax relief
When deciding if you meet the risk to capital condition, we will look at things like your company’s:
- sources of income
- use of subcontractors
- marketing of the investment opportunity
- relationship with other companies
You will not meet the risk to capital condition if there are risk reducing arrangements in place that result in an investor:
- getting priority over other investors
- being able to withdraw their money as soon as possible
- protecting their money so that other investors money is used first
You can ask HMRC if your share issue is likely to qualify before you go ahead, this is called advance assurance.
The shares you issue must be paid up in full, in cash, when they’re issued. Your company should have a way to accept payment before shares are issued.
To qualify for the Seed Enterprise Investment Scheme the shares issued must be full risk ordinary shares which:
- are not redeemable
- carry no special rights to your assets
The shares you issue can have limited preferential rights to dividends. However, the rights to receive dividends cannot be allowed to accumulate or allow the dividend to be varied.
When you issue the shares there cannot be an arrangement:
- to guarantee the investment or protect the investor from risk
- to sell the shares at the end of, or during the investment period
- to structure your activities to let an investor benefit in a way that’s not intended by the scheme
- for a reciprocal agreement where you invest back in an investor’s company to also gain tax relief
- to raise money for the purpose of tax avoidance — the investment must be for a genuine commercial reason
After you have issued shares
To allow your investors to claim Seed Enterprise Investment Scheme tax reliefs you must first submit a compliance statement (form SEIS1) to HMRC for the shares issued.
Apply with a compliance statement
You can submit a compliance statement if you are:
- the company secretary
- a director
- an agent
You can authorise an agent to apply on your behalf. They’ll need to provide a signed letter dated within the last 3 months confirming that they are entitled to act on your behalf.
You need to:
Issue your shares.
Complete a compliance statement (SEIS1).
Send it to us.
If you have advance assurance you’ll need to provide copies of any documents that have changed since HMRC gave you advance assurance.
If you’ve not got advance assurance, you must provide the following information for your company and its subsidiaries:
- the business plan and financial forecasts
- a copy of the latest accounts
- an explanation of how you meet the risk to capital condition
- details of all trading and activities to be carried out, and how much you expect to spend on each activity
- an up to date copy of the memorandum and articles of association
- the information memorandum, prospectus or other documents used to explain the fundraising proposal to your investors
- details of any other agreements between your company and the shareholder
- a list of the amounts, dates and venture capital schemes under which you’ve previously received investment
- any other documents to show you meet the qualifying conditions
You can only submit your compliance statement when the issuing company, or a qualifying 90% subsidiary of that company, has met at least one of the following conditions:
- carried out the new qualifying trade which represents the qualifying business activity for at least 4 months
- spent at least 70% of the amount raised by the relevant share issue
You must complete a separate statement for each share issue.
What happens next
If we do not agree that the conditions of the scheme have been met, we will write to you telling you why and how you can appeal the decision.
If we agree:
We will send you a letter of authorisation, a unique reference number and a compliance certificate (form SEIS3) to give to your investors.
You must use the unique investment reference number on the compliance certificates you give to investors — they’ll need this and the compliance certificate to claim tax relief.
You must follow the scheme rules for at least 3 years after the investment is made — otherwise tax relief will be withdrawn from your investors.
Get more information
You can find more information in the HMRC Venture Capital Schemes Manual.
If you have any questions about your SEIS compliance statement or the SEIS you can email: email@example.com.
For any claims by investors you can contact us.