Recognizing the various financial struggle start-ups and SMEs face during their early stage of operation, both the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) are initiatives developed by the UK Government targeting small and mid-sized organizations. The initiative, termed as two of the key venture capital schemes encourages innovation and support by granting private investors a significant tax incentive or notable tax break when investing in start-ups, qualifying trade companies, and high-risk ventures.
The primary purpose of these two schemes named Seed Enterprise Investment Scheme & Enrerprise Investment Scheme is to help budding brands and trading companies with less than two years of operational span a benefit-worthy push or support when it comes to financial backing. It also aims to help proactive private investors by encouraging them to fund these organizations in their time of monetary need with the investors using a generous tax redemption as a personal incentive.
Being an integral part of the UK Govt’s plan to encourage and support SMEs, each of these schemes have been made to make investment in UK-based trading businesses or SMEs lucrative. However, procuring investments or applying for tax relief can be quite a complicated process involving a lot of intricate laws and rules. This is primarily why Goodhams Accountants & Tax Advisors have created a concrete consultation and implementation plan that can help both private investors make the best of their tax break and SMEs or early trading businesses secure their required investment.
EIS Vs SEIS: The Primary Difference
The EIS was the first scheme introduced by the UK Govt, shortly after which the SEIS was formed and implemented in 2012 making UK-based companies more investable in terms of profit. But before we dive deep into the laws and regulations, let’s take a look at the primary difference between the two schemes.
Even though both the plans aim to promote UK’s home-grown businesses and trades, there is a fine line that differentiates these two financial grant schemes.
SEIS
The Seed Enterprise Investment Scheme solely focuses on early-stage companies. Here are the following features of SEIS-
- A generous greater Income Tax relief of 50% is levied against the amount invested.
- Investors can invest up to £100,000 per taxable year.
- Investors are allowed to carry a portion of their investment in the preceding year
- Investors can also make the best of capital gains tax exemption on the profits, if any, arises from the shares or sales after a 3 year period.
- Shares are considered inheritance tax free as long as they are held for the first 2 year period.
- If the shares are sold at loss, as an investor, you can offset this against the Capital Gains Tax or Income Tax.
EIS
The Enterprise Investment Scheme released before the SEIS focuses on small and medium-sized companies. Here ate the following features of EIS-
- A significant greater Income Tax Relief of 30% is levied against the amount invested.
- Investors can invest up to £1m per taxable year.
- Investors are allowed to carry a portion of their investment in the preceding year
- Investors can defer up to 100% of their investment against Capital Gains Tax incurred up to 1 year or any time after the 3rd year disposal.
- Shares are considered inheritance tax free as long as they are held for the first 2 year period.
- If the shares are sold at loss, as an investor, you can offset this against the Capital Gains Tax or Income Tax.
Enterprise Eligibility
To qualify for any of the two schemes, companies must
- Be under 2-year operational span for SEIS and 7-year operational span for EIS
- Have £200,000 or less in gross assets for SEIS or £15m for EIS
- Have under 25 employees for SEIS or 250 employees under EIS
Even though most of the start-ups or SMEs qualify for the scheme, some companies are legally exempted from this financial benefit scheme. These trades include money-lending, insurance, accountancy, legal, banking, property development, electricity exporting and subsidiary. However, if you’re seeking legal advice from professional tax consultors, you can still find a loop hole to this exemption. For instance, a company can only be exempted if more than 20% of the trade activity consists of the exempted trades.
Funds Usage
If the Govt grants your SME or start-up either of the SEIS or EIS scheme, companies need to use the fund solely to promote the growth and development of the company. This may include anything that helps the company expand and prosper, from marketing budgets to hiring new workforce.
A company under the SEIS scheme can raise a maximum or £150,000 and a company under the EIS scheme can go up to £12m. However, funds for aid gathered in the last 3 years of operation by the company will be counted within the limit of investment and you will not get the full amount from the scheme.
How can Goodhams Help?
With an industry-bred workforce of powerful tax advisors and financial consultants, Goodhams has the comprehensive knowledge that can help you get your investment or tax exemption in order. From consultation regarding investment procurement to SEIS or EIS application, financial planning, and more- you can get comprehensive knowledge and functional implementation of both the schemes with our experts choosing the right scheme and plans for you. However, what we described here is simply a brief overview of the entire gamut of SEIS and EIS. If you wish to consult further or simply wish to know more about the schemes, please contact any one of our team members and we will diligently help you understand, conceptualize, and implement the same.
