The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are both initiatives led by the UK government aimed at encouraging investment in UK-based, early-stage businesses. For entrepreneurs, this provides an opportunity to bridge the funding gap often found when raising capital for early-stage, high-risk businesses by offering SEIS and EIS related tax relief to investors willing to invest in these companies.
While similar, both schemes have important differences concerning their areas of focuses, eligibility criteria (for entrepreneurs) and their tax reliefs (for investors) – so let’s dive into these:
EIS focuses on small-to-medium sized start-ups with the aim of growing their business; allowing individual investors to invest up to £1 million per tax year with a 30% income tax relief against the amount invested. The maximum lifetime amount that can be raised on an EIS company is £12 million, or £20 million if the company is ‘knowledge intensive’ – which are typically those with high research and development costs.
On the other hand, SEIS focuses on very early-stage businesses starting to trade. While the lifetime cap on the amount that can be raised is £150,000, the scheme offers a 50% tax break against the amount invested. Investors can also expect tax reliefs of up to £100,000 per tax year as well as a capital gains tax exemption when selling shares after three years.
How much can I raise under EIS and SEIS?
Under SEIS investment, the annual limit on the amount that can be raised is £150,000; this figure also applies to the lifetime amount that can be raised. For an EIS investment, the annual and lifetime limit is £5 million and £12 million, respectively.
Important to also note is that if your company has raises EIS money, you will not be able to issue SEIS shares. However, if your company has issues SEIS shares, you can go on to issue EIS shares provided the conditions regarding how the money is used are met.