A Guide to SEIS, EIS and Advance Assurance

SEIS, EIS, and Step-by-Step Guidance on How to Apply and Register for Advance Assurance

March 7, 2025

Summary

The ‘SEIS’ (Seed Enterprise Investment Scheme) and the ‘EIS’ (Enterprise Investment Scheme) are two UK government-backed initiatives designed to encourage investment in small businesses and startups by offering certain tax reliefs to prospective investors. Under SEIS and EIS, private investors get significant tax breaks as a reward for investing in early-stage, ‘higher-risk’ companies.‍

This research note will provide guidance and assist in understanding how any funding received should be spent by the recipient company, which tax benefits are available to investors, and step-by-step guidance on how to apply for Advance Assurance.

What is SEIS?

The SEIS was established in 2012, and it is a UK government initiative designed to stimulate economic growth and foster innovation by encouraging private investors to buy stakes in smaller businesses.

SEIS offers a rate of income tax relief of 50% to encourage investments in early-stage startups, allowing them to reduce their taxable income, and consequently their income tax bill. The scheme assists smaller and younger businesses in securing the necessary capital for expansion through private share purchases. It differs from its sister scheme, the Enterprise Investment Scheme (EIS).

The annual tax relief limit for prospective investors is set at £200,000. Companies who take advantage of the SEIS are able to raise up to £250,000, and – unlike the EIS (which permits EIS compatible companies to hold total gross assets of £15m immediately prior to share issue) – there is is a gross asset limit for companies to maintain SEIS compatibility set at a comparatively modest £350,000.

The purpose of the capital raised via the SEIS must be for:

expenses to assist in growing the company such as marketing, new equipment, or more employees; and/or

research and development which will enhance the growth potential of the company in the future such as developing a new product.

BENEFITS OF SEIS

Income tax relief

An individual investor can provide up to £200,000 of funding per year for SEIS-qualifying companies. When filing a tax return with the HMRC, they can claim income tax relief of up to 50% of their investment.

Capital gains disposal relief

Provided SEIS compatible shares are held for at least three years and SEIS Income Tax relief has been received in full for those shares and no event has occurred to cause such relief to be withdrawn, no capital gains tax will be payable on the profits made from the sale of those SEIS shares.

Capital gains reinvestment relief

SEIS allows for the reduction of a chargeable gain by 50% of the investment under the scheme, where the investor has reinvested all or part of the amount of that gain in qualifying SEIS shares.

Loss relief

If your investment doesn’t perform as expected, SEIS allows you to claim loss relief by offsetting the loss against your income tax or capital gains tax (CGT) liabilities. The loss can be offset against income tax at your marginal income tax rate (20% for basic rate taxpayers, 40% for higher rate taxpayers, and 45% for additional rate taxpayers) and/or your marginal CGT rate (18% for basic rate taxpayers, and 24% for higher and additional rate taxpayers). The amount of loss relief an investor is eligible for is the ‘effective loss’ and depends on the at-risk investment and takes into account the amount of income tax relief already received.

Inheritance tax relief

There is no inheritance tax payable on shares bought through the SEIS as long as they have been held for at least two years.

TRANSFERS AND ISSUES – WHEN IS SEIS RELIEF AVAILABLE?

The general rule is that SEIS relief may be available on the fresh issue of shares, and would be lost following the disposal or transfer of shares. If SEIS compatible shares are transferred, (for instance through a sale or gift), no SEIS tax relief would apply to the transfer itself. The relief is tied to the original investment when the shares were issued, and the original investor must meet specific conditions at that time.

HMRC Guidance states the following:

Relief will be withdrawn where before the end of [the period running from the date of share issue to the third anniversary of such share issue], the investor disposes of shares for which SEIS relief has been given.

The following can also be paraphrased:

The death of an investor or a disposal to a spouse or civil partner does not trigger the withdrawal of any relief given. In the latter case, the shares are treated as though the spouse or civil partner had subscribed for them.

The guidance makes regular reference to the “issue requirement” and (with the exception of those clear examples detailed above) it is difficult to consider any other exceptions outside of a ‘share reorganisation’ (such as pursuant to a share-for-share swap) in which shares acquired by way of a transfer would entitle such an investor to retain any SEIS relief that may have applied to such shares prior to the transfer.

ELIGIBILITY FOR SEIS RELIEF

For an investment to be eligible for SEIS tax relief, both companies and investors must follow certain rules:

Investor requirements	Company requirements
Must be a UK taxpayer.	Must have a permanent UK establishment.
Cannot be an employee or own more than 30% of the SEIS company.	Must have fewer than 25 full-time equivalent employees.
Maximum SEIS investment of £200,000 per tax year (lifetime limit of £250,000).	Total gross assets must not exceed £350,000 before the new shares are issued.
Shares must be paid for upfront, in cash, and held for at least three years.	Must carry out a qualifying trade.
Cannot receive ‘value’ from the SEIS company for three years after investing.	Must have been trading for less than three years.

Failing to meet the following conditions may disqualify the investment from tax relief:

The SEIS shares must be full-risk ordinary shares that are non-redeemable and carry no special rights to the company’s assets.

There must be a risk of loss to the investor’s capital (known as the ‘risk to capital condition’).

The scheme cannot be used for tax avoidance purposes.

The company must receive SEIS funds before issuing new shares to investors. However, there should not be too much of a gap between these events, unless the SEIS investment happens through a qualifying Advanced Subscription Agreement (ASA).

What is the Enterprise Investment Scheme (EIS)?

Introduced in 1994, the EIS is a program that provides tax benefits to individual investors who purchase new shares in a company. This scheme attracts investors, enabling it to raise funds and expand its business operations.

Under this scheme, a business can raise up to £5 million annually, with a lifetime limit of £12 million. It is vital to note that these limits include amounts received from other venture capital schemes, provided the initial investment was made within seven years of the company’s first commercial sale.

To take advantage of the EIS, it’s crucial to ensure your company is eligible for the scheme and abides by its rules. This ensures that your investors can claim and retain the tax reliefs associated with their shares under the EIS. Failure to abide by the rules of the scheme for at least three years after the investment has been made could result in tax reliefs being either withheld or withdrawn from investors.

BENEFITS OF EIS

Income tax relief

Investors are able to claim up to 30% income tax relief on EIS investments, which provides incentive for some of the risk normally associated with funding small companies. The maximum investment that investors can claim relief on in a single tax year is £1 million, which amounts to £300,000 of income tax relief.

Tax relief growth

When investors sell EIS shares, any growth value from an investment is 100% tax free. This is worth noting, as small, early-stage companies have the potential to grow significantly.

Capital gains deferral

A gain made on the sale of other assets can be reinvested in EIS shares and deferred over the life of the investment. There is no upper limit on the value of gains that can be deferred. It is worth noting that it is the gain, not the proceeds of the sale that should be reinvested.

For instance, if an asset was sold for £50,000 and cost £10,000, this would result in a gain of £40,000. The £40,000 would then need to be reinvested in EIS-qualifying shares in order to defer the gain.

EIS and inheritance tax relief

EIS shares qualify for Business Relief. This means that they can be left to beneficiaries free from inheritance tax, as long as they have been held for at least two years at the time of death.

Loss relief

EIS-qualifying investments involve buying shares in early stage companies, therefore the risk of these shares dropping in value is higher than most investments.

EIS loss relief reduces the impact made on individual companies. This is the case even if an investor holds a portfolio of EIS companies that, overall, has delivered a positive return.

WHEN IS EIS RELIEF AVAILABLE?

Like SEIS relief, EIS relief is also available on newly issued shares in qualifying companies, not on the transfer of shares. The shares must be newly issued to the investor by the company, meaning that they are directly purchased from the company (usually through a fundraising round).

When shares are transferred between individuals, such as in a secondary market transaction or share sale, EIS relief is not available. The scheme is designed to incentivize investment in early-stage companies by providing tax reliefs to investors who purchase new shares directly from the company, supporting its growth.

ELIGIBILITY FOR EIS RELIEF

Investor requirements	Company requirements
Employees or directors of the company	Have gross assets of less than £15m, and no more than £16m immediately after the share issue.
Investors who (together with their ‘associates’) hold more than 30 per cent of the company’s share capital.	Have fewer than 250 ‘full time equivalent’ employees.
Relatives of connected persons, though not siblings.	Be unquoted or on AIM, and have no arrangements in place to become quoted on a recognised stock exchange.
Business partners of connected persons.	At the time of the share issue AND for three years after the share issue, the company must: Be independent, i.e. not under the control of another company. Conduct a qualifying trade. Have a UK ‘permanent establishment’, though trading mainly in the UK is no longer a requirement.
Existing shareholders whose shares are not SEIS or EIS qualifying, or subscriber shares.
There are provisions for ‘Business Angels’, enabling certain investors to become directors.

What is Advance Assurance?

Advance Assurance is an indication from HMRC that an investment is likely to qualify for tax relief under one of the UK’s venture capital schemes – such as the SEIS or EIS.

Early-stage startups hoping to raise venture capital funding through SEIS or EIS can apply for Advance Assurance before approaching investors. If a company receives confirmation from HMRC of its eligibility for SEIS or EIS, it is typically seen as a more attractive investment opportunity. However, Advance Assurance doesn’t guarantee that an individual investor would meet the conditions of the scheme.

Advance Assurance application and stages

Applying for Advance Assurance involves several key steps:

Step 1: Verifying that your company is eligible for SEIS or EIS:

Business Age – SEIS applies to companies under two years old, while EIS extends to companies up to seven years old.
Gross Assets – the company’s gross assets must not exceed £200,000 for SEIS or £15 million for EIS.
Employee Count – SEIS limits the full-time employee count to fewer than 25, while EIS caps it at 250.
Qualifying Trades – certain industries, such as financial services and property development, are excluded.

Step 2: Preparing a business plan or pitch deck and a financial forecast

Three-year Business Plan – highlight your unique value proposition, market opportunity, and scalability. Investors need to see the growth potential.

Financial Projections – include detailed forecasts demonstrating how the funding will be used and the expected returns.

Pitch Deck – a concise and visually appealing pitch deck can complement the application.

Unique Taxpayer Reference (UTR).

HMRC requires proof of interest from at least one investor. This could be a letter of engagement from an individual, a VC firm, or a crowdfunding platform.

Step 3: Apply for Advance Assurance

Address the “Risk to Capital” Condition:

Unlike when pitching to an investor, evidence must be shown to the HMRC that:

The investment involves genuine risk.
Funds will support business growth and development.
There are no arrangements to protect investors from risk.

If a startup is aiming to attract early-stage investors through the SEIS or the EIS, securing Advance Assurance from HMRC can provide a competitive edge. While it is not compulsory, it is highly recommended and often expected by investors.

Use HMRC’s online portal to apply, including a cover letter and all supporting documents. The HMRC typically takes 15-40 working days to process applications.

Step 4: Secure Investors

With Advance Assurance in hand, potential investors could be approached more easily. Leveraging the tax relief benefits as a key selling point in the pitch will be beneficial.

Target the right investors: focus should be on investors or venture capitalists specialising in early-stage businesses.
Clear communication: when reaching out to investors, emphasis should be put on how SEIS/EIS tax reliefs reduce risk while maximising returns.
Leverage networks: platforms such as R Europe (formerly Seedrs) or AngelList can connect you with potential investors looking for SEIS & EIS investment opportunities.

Step 5: Issue Compliance Certificates

Once funding has been secured, the next task is to issue compliance certificates (SEIS3 or EIS3) to the investors. These certificates enable them to claim their tax reliefs. The process is as follows:

File a compliance statement (SEIS1/EIS1): this should be submitted to the HMRC when at least 70% of the funds has been raised.
Receive authorisation: HMRC will review your submission and, if approved, issue a letter allowing you to distribute SEIS3/EIS3 certificates.
Issue to investors: share the certificates promptly so investors can claim their relief.

CONCLUSION

Both the SEIS and the EIS provide significant benefits to investors and early-stage companies, playing a vital role in supporting the growth of small businesses and startups across the UK. The SEIS and EIS are critical elements of the UK’s startup ecosystem, benefiting both investors and businesses. When carefully utilised, these schemes provide a robust framework for stimulating entrepreneurship and creating long-term value for all stakeholders.

~ Esra Agirbas and Aji Ayorinde