Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
The 2022 Autumn Statement announced a lot of big changes to the UK tax system, many of which are coming into force in April 2023. Perhaps less well-known, however, are the planned increases to the “SEIS” caps (Seed Enterprise Investment Scheme) which will help companies raise more funds under the scheme. Below, our team at Bure Valley Group outlines some key SEIS changes to know about in 2023 and their implications for investors. We hope this is useful to you. 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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Key changes from the 2022 budget
The Seed Enterprise Investment Scheme (SEIS) has been invaluable in helping the UK grow thriving startups. Since its launch in 2012-13, 13,800 companies have raised £1.4bn in funds, with £170 million of funds raised in 2019-20 alone. Since the UK is currently wrestling with high inflation, high public debt (especially following the Covid-19 “spending spree”) and rising interest rates putting pressure on households and businesses, schemes like SEIS will be crucial to help stimulate economic growth and create jobs. Successive UK governments have recognised this over recent years, leading to some key changes announced in late 2022.
One important change coming in April 2023 is that SEIS-qualifying companies will soon be able to raise £250,000 in SEIS funds. This is up from £150,000 previously allowed under the scheme (although this will not apply to SEIS shares that have been issued before 6 April 2023). There is some potential legroom, however, in that companies will soon be allowed to start raising SEIS funds within 3 years of trading – rather than just 2 years. Slightly larger companies will also have access to the scheme from April 2023, with the limit of gross assets expanding from £200,000 to £350,000. Please note that if your company has ever issued EIS shares (Enterprise Investment Scheme), then you can not raise funds under SEIS after that.
What the changes mean for founders and investors
Naturally, these SEIS changes have been greeted with a lot of excitement. Chief executive of the Association of Investment Companies, Richard Stone, has said that “VCTs [and EIS] provide scale-up finance for growing businesses and are fully aligned with the government’s drive for growth, creating jobs, funding innovation and boosting exports. We look forward to clarification of how the government will remove the existing uncertainty surrounding the scheme.” For some time now, a sunset clause created under European Union state aid rules previously meant that only subscribers in VCT shares issued before April 6 2025 could claim tax relief. Yet the UK government has leveraged its powers over “secondary legislation” to extend the VCT (and EIS) schemes beyond their old expiry date.
This means that many small UK businesses will have access to funding opportunities that were not available to them before. Moreover, investors should soon be able to find a more diverse set of SEIS opportunities in the coming year. This could allow for more diversification in tax-efficient early-stage investments. Yet how can founders potentially start accessing the SEIS extensions in Q1 of 2023? One potential answer is for startups to explore raising cash ahead of a funding round using an “Advanced Subscription Agreement (ASA)”. By using, say, a six-month longstop date, investors may be able to invest before April 2023 – after which the SEIS shares are issued and the new SEIS rules come into force.
Consider SEIS for your portfolio
SEIS has long been an attractive option for investors with an interest in early-stage companies. With 50% income tax relief available on SEIS investments worth up to £100,000 each tax year, a £10,000 SEIS investment could, in practice, only “cost” you £5,000. SEIS shares held for at least three years are exempt from capital gains tax (CGT), and investors can access “loss relief” allowing investors to write off share losses against income tax. The companies applying for the scheme can also offer high-growth potential, with a lot of “runway” before them. By investing in these innovative job-creators, investors can help support the wider UK economy and diversify their holdings to mitigate risks and access a wider range of investment opportunities.
The new changes coming in April 2023 offer strong tailwinds to the SEIS sector. Any companies that have already hit the 2-year trading limit, for instance, can still use the SEIS if they have traded for less than 2.5 years. Bear in mind, however, that the SEIS changes announced last year are still to be approved by parliament and are yet to appear on the HMRC website. Until everything has been confirmed, please do not take the proposed changes as gospel. Speak to a financial adviser if you need professional guidance.
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