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The Seed Enterprise Investment Scheme (SEIS) was introduced in 2012 by the government to encourage investment into early-stage, small companies which needed funds to grow and boost the UK economy through greater innovation and tax revenues from more employment. In 2021, SEIS remains a compelling option for investors looking for tax-efficient ways to boost a portfolio with companies holding out strong potential to generate higher returns.
The scheme, however, can be complex and so naturally leads to many questions from investors – which we attempt to address in our article, here. We hope you find this content useful.To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding, you can reach us via:
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How is SEIS different from EIS?
The Enterprise Investment Scheme – EIS – is sometimes confused with SEIS, understandably so since they share many common traits. Both were designed by the government to encourage more investment into British companies not listed on the London Stock Exchange (LSE) and which could benefit the economy, overall, in the long term. Both EIS and SEIS offer tax reliefs to investors and place limits on which companies can apply for the schemes.
The main difference between EIS and SEIS, however, lies in the type of company they target. The first incentivises investors to fund unquoted UK companies carrying on a qualifying trade, whilst the second encourages investment towards specific startups. This is reflected in the rules about maximum gross shares allowed before a company can issue shares under each scheme, with EIS setting a ceiling of £15,000,000 and SEIS £200,000. The former also restricts itself to businesses comprising fewer than 250 employees, whilst for the latter the number is 25.
Can a company seek funding under EIS and SEIS?
If a company has raised EIS money then it cannot issue SEIS shares. On the other hand, if a business has previously issued SEIS shares then it can, later, issue EIS shares (e.g. after the company expands). Here, the main restrictions include not issuing the two share types on the same day, and the company needs to meet the necessary criteria for the respective scheme.
How much can I invest in SEIS?
There is a limit on how much you can invest into SEIS shares in a given tax year. In 2021-22, this is £100,000. This is considerably smaller than the £1m you can invest into EIS shares each year, but the high-growth-potential nature of the early-stage companies covered under SEIS can still make the scheme very attractive to investors. Moreover, SEIS offers investors Income tax relief at 50% rather than the 30% offered by EIS. For an Additional Rate taxpayer, therefore, an SEIS-qualifying company could represent a significant tax saving and investment opportunity!
Which investors can invest into SEIS?
SEIS investments are only open to certain types of investors. Firstly, you cannot be “connected” to the company – e.g. by being a director, partner or paid employee. You must also ensure that you do not hold more than 30% interest in the company or any subsidiaries. Investors must also be UK taxpayers, so make sure you have appropriate residency status before investing!
Is SEIS better than a Venture Capital Trust (VCT)?
VCTs, on the surface, seem very similar to SEIS. Both usually invest in early-stage companies, for instance, and offer attractive tax benefits to investors. However, there are some important differences which you should consider before including either/both within your portfolio. Notably, VCTs are investment companies listed on the LSE. You can invest your money into them and they then invest that money on your behalf into small, startup companies which meet specific criteria (e.g. they are unquoted). To invest into SEIS companies, however, you must either do this individually or by investing into an SEIS fund; i.e. funds which focus on SEIS-qualifying companies with the hope of generating a return for their investors.
What kind of risk and return does SEIS offer?
Since SEIS tends to focus on early-stage companies, the risk involved for investors is usually higher compared to the stocks of established businesses on recognised stock exchanges. This is, of course, because startups have a higher rate of failure compared to larger companies with a strong track record and proof of concept for their products/services. However, the returns can be well-worth the risk for investors who have the appropriate investment horizon, financial goals and risk appetite. It can help enormously to work with an investment network to mitigate the risk involved. Here at Bure Valley Group, for example, our exclusive network offers a range of vetted investment opportunities and projects to investors – providing that additional layer of protection and confidence for your portfolio.
Technology companies can be a powerful addition to an investor’s portfolio. Given their volatility, however, make sure your asset mix reflects your investment goals, strategy and risk appetite.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827