The Seed Enterprise Investment Scheme (SEIS) is ‘intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate than that offered by EIS.’ It was created partly in response to a 2011 consultation. The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. Respondents argued that there was a need for a scheme that specifically encouraged seed investment. Some of the reasons for this included:
the gap between the risk of the business proposal and the risk the investor is willing to take is larger at this stage;
that investments were moving away from seed stage companies; and, although EIS works well to encourage seed investment now, the planned changes to the amount companies can raise per year (to £10 million, subject to State aid approval) could make it more difficult for seed companies in future.
It was announced in the Autumn Statement 2011. It initially offered ‘50 per cent income tax relief on investments, and will offer a capital gains tax exemption on gains realised in 2012–13 and then invested through SEIS in the same year.’
The FSB welcomed the scheme and stated that it would ‘give start-ups and fledgling businesses the chance to by-pass the high street banks and find alternative sources of finance.’ The 50% tax relief applies to investments of up to £100,000 a year. The SEIS was made permanent in March 2014, with the then Government announcing that this would create ‘more certainty for early stage companies raising equity, and individuals investing in such companies.’
The SEIS was forecast to cost £180 million in 2014/15. In its pre-election Budget 2015, the Coalition Government announced changes to SEIS, EIS and Venture Capital Trust (VCT) to bring them in line with new EU legislation. The changes included:
a requirement that companies must be less than 12 years old when receiving their first EIS or VCT investment, except where the investment would lead to a substantial change in the company’s activity;
the introduction of a cap on total investment received under the tax-advantaged venture capital schemes of £15 million, increasing to £20 million for knowledge-intensive companies; and
an increase in the employee limit for knowledge-intensive companies to 499 employees, from the current limit of 249 employees.
In the financial year 2012-13 ‘almost 2,000 companies received investment through the SEIS and £164 million of funds were raised.’ The SEIS website has information about how to apply for the SEIS, both for investors and for start-up firms looking to source finance.