What is the Seed Enterprise Investment Scheme (SEIS)?

Understanding the Seed Enterprise Investment Scheme

Early-stage businesses often face challenges when raising finance, particularly before they have established a trading record or consistent revenue. The Seed Enterprise Investment Scheme was introduced to encourage individuals to invest in these businesses by offering a range of tax incentives that reduce some of the financial risk associated with investing.

Unlike loans or grant funding, SEIS supports businesses through equity investment. Investors subscribe for new ordinary shares in a qualifying company and, where the relevant conditions are met, may be eligible to claim tax reliefs. Eligibility is determined by rules administered by HMRC, including criteria relating to the company’s age, trading activities, employee numbers and gross assets.

SEIS is widely used by start-ups seeking external investment and is often considered alongside other funding options, such as the Enterprise Investment Scheme (EIS), angel investment and venture capital. Businesses raising finance commonly obtain professional tax advice to understand whether they qualify before approaching potential investors.

Key features of SEIS

• It is designed to support investment in qualifying early-stage companies.
• Funding is raised by issuing new ordinary shares rather than borrowing money.
• Eligible investors may qualify for income tax, capital gains tax and inheritance tax relief, subject to the statutory conditions.
• Companies must satisfy specific HMRC eligibility requirements before shares qualify under the scheme.
• Advance assurance may be obtained from HMRC to provide prospective investors with greater confidence that the proposed investment is likely to qualify.

How the scheme works

1. The company first establishes whether it meets the qualifying conditions for SEIS.
2. Eligible businesses raise investment by issuing new ordinary shares to individual investors.
3. Following the investment, the company submits the relevant information to HMRC to confirm that the shares qualify under the scheme.
4. Once accepted, investors receive the documentation required to claim any available tax relief through their Self-Assessment tax return.

SEIS in practice

A newly established software company is seeking funding to develop its first commercial product. Rather than relying solely on bank finance, it raises equity investment through SEIS. Because the company satisfies the qualifying conditions, eligible investors are able to claim the available tax reliefs while the business secures the capital needed to recruit staff, develop its product and support future growth.

Related terms

• Enterprise Investment Scheme (EIS)
• Angel investor
• Equity finance
• Venture capital
• Advance assurance
• Ordinary shares
• Start-up funding
• Capital gains tax

Common misconceptions

• SEIS does not guarantee that an investment will generate a financial return.
• Not every start-up qualifies for the scheme, as businesses must meet specific eligibility criteria.
• Tax relief reduces certain investment risks but does not eliminate the possibility of financial loss.

Questions about SEIS

Who can invest through SEIS?

Individuals who invest directly in qualifying companies may be eligible for the available tax reliefs, provided both the investor and the investment satisfy the relevant statutory conditions.

Which businesses can qualify for SEIS?

The scheme is intended for small, early-stage trading companies that meet HMRC’s eligibility requirements relating to factors such as age, size, trading activities and gross assets.

What tax relief is available under SEIS?

Eligible investors may qualify for income tax relief, capital gains tax relief and inheritance tax benefits, subject to the detailed rules governing the scheme.

Can a company use both SEIS and EIS?

Yes. A business may raise investment under both schemes, provided it satisfies the qualifying conditions and complies with the relevant legislation for each.

Is HMRC advance assurance compulsory?

No. Advance assurance is optional, but many companies seek it because it provides prospective investors with greater confidence that the proposed investment is likely to qualify.

Where does SEIS fit within start-up funding?

SEIS is one of several ways early-stage businesses can raise equity finance and is commonly used alongside founder investment, angel investment and other external funding options.