In the UK there are a number of schemes and initiatives to incentivise angel investors to invest their capital into startups. One of these schemes is the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). These government-backed initiatives offer attractive tax incentives to investors, encouraging them to provide vital funding to startups and small businesses. In this article, we will explore what SEIS/EIS are, why they matter, and how investors can navigate the process of accessing these schemes.
What are SEIS and EIS?
Seed Enterprise Investment Scheme (SEIS):
SEIS is a government scheme designed to promote investment in early-stage, high-risk startups. Launched in 2012, it provides tax incentives to individual investors who support qualifying companies. Investors can receive significant income tax relief, capital gains tax relief, and even loss relief if the venture doesn’t succeed. As of April 2023, investors receive a 50% tax break on up to £200,000 they invest through SEIS every tax year.
Enterprise Investment Scheme (EIS):
Building on the success of SEIS, EIS extends its benefits to larger, more established companies. EIS offers tax advantages to investors who provide funding to businesses that may carry higher risks but have the potential for substantial growth. Like SEIS, it provides income tax relief, capital gains tax relief, and loss relief. Usually, investors receive a 30% tax break on up to £1 million they invest through EIS every tax year.
We have also prepared a 20 minute video for for you by our accounting partner, Rob Jones who shares how tax relief and SEIS/EIS works in the UK.
Step by step numerical example of requesting SEIS
Usually, you will claim your SEIS at the same time as completing your tax returns and there are two ways for you to do that: on paper and online.
Here is a numerical example of how to request SEIS on paper. Let’s assume you invested £10,000 in a startup called AngelInvestToday!
- Angel investor invests £10,000 GBP in Startup AngelInvestToday
- The founder of this startup receives £10,000 GBP
- The return the founder will send you a certificate called SEIS3 certificate
- You as an angel investor will fill out your tax return and include information from SEIS3 certificate
- Angel investor completes the “Additional information” sheet (form SA101)
- In the “Other tax reliefs” section on page Ai 2, in box 10 (“Subscriptions for shares under the Seed Enterprise Investment Scheme”) write the total amount of all your SEIS subscriptions for which you wish to claim tax relief.
- Once submitted, HMRC will confirm that 50% of your investment (£5,000) will be deducted from your Income Tax.
The above is done for the paper form.
and you are done!
If you want to claim your tax relief as part of your online assessment, you will have to complete two sections: Section 3 and Section 4.
- In section 3, “Tailor your return”, you will have to answer “Yes”.
- In section 4, “Fill in your return”, under “Other tax relief and deductions” you will have to type the total amount of all your SEIS subscriptions on which you wish to claim tax relief and can provide details of each of your SEIS investments.
and you are done!
Why Do SEIS and EIS Matter for Angel Investors?
SEIS and EIS hold significant importance for angel investors, primarily due to the array of benefits they provide. One pivotal aspect is the attractive tax incentives offered by both schemes, designed to stimulate private investment in startups and small businesses.
Through these incentives, investors can substantially reduce their tax liability by a percentage of the invested amount. Moreover, given the inherent risks associated with investing in early-stage companies, SEIS and EIS act as risk-mitigation tools. They provide capital gains tax relief and loss relief, acting as a financial safety net in cases where investments may not yield the expected returns. By offering financial support, angel investors become catalysts for entrepreneurial activity, fostering a culture of innovation that, in turn, propels economic development within the country.
How to access SEIS/EIS?
Accessing the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) involves a strategic process for potential investors. The initial step is to meticulously identify qualifying companies, ensuring alignment with the eligibility criteria set by HM Revenue & Customs (HMRC), considering aspects like company size, age, and business nature.
To claim tax relief, investors and companies must submit the necessary documentation, including forms like the SEIS/EIS Compliance Statement, to HMRC. After the investment, income tax relief, capital gains tax relief, and loss relief can be claimed through self-assessment tax returns.
Conclusion
SEIS and EIS are powerful tools that not only benefit angel investors but also contribute significantly to the growth of the UK’s entrepreneurial landscape. By understanding these schemes and following the proper procedures for investment and compliance, investors can make informed decisions that support innovation and economic development.