EIS & SEIS – The tax reliefs get tougher!

The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) offer attractive investment opportunities for individual investors which in turn allow young entrepreneurial UK companies to raise funding to facilitate growth and expansion plans.  However, the generous tax reliefs which make SEIS & EIS opportunities attractive for investors have recently become a lot more complicated to secure!

Through SEIS and EIS investment small start-up or growth companies can attract funding subject to certain limits and qualifying conditions.  Investors can benefit from a range of valuable tax reliefs including Income Tax relief on acquisition and exemptions and deferrals of Capital Gains Tax.

Therefore, it’s not difficult to see why an Investor would be attracted to a business which qualifies for such generous tax reliefs.  However, within the SEIS and EIS rules there exists numerous complex qualifying conditions which both the company and the investor must satisfy in order to attract the initial tax reliefs and these must be maintained during a specified qualifying period.

Recognising this complexity, HM Revenue & Customs (HMRC) offer an ‘Advance Assurance’ process which obtains HMRC’s confirmation that the company meets the SEIS and/or EIS eligibility criteria.  Although an optional process, it is something which companies seeking investment usually undertake to demonstrate to investors that the valuable tax reliefs will be available and therefore attract investment.

However, since 2 January 2018 HMRC have altered their Advance Assurance policy adding unwelcome complexity and now refuse to consider what they deem ‘speculative applications’.  This means that more detailed information, about the business and the investors, must now be disclosed during the application process.

The biggest change? HMRC now require the full name and residential address of potential investors to be disclosed before it will consider whether the company will qualify.  HMRC have stated this is to avoid wasting valuable HMRC resource on companies which have no prospect of attracting an investment and by providing names it will have this reassurance.  We have received confirmation from HMRC directly that all information provided regarding potential investors is made on a confidential basis only, and such individuals will not be contacted by HMRC as part of the Advance Assurance process.

Further policy changes on Advance Assurance require full business plans to be submitted as part of the process including profit forecasts as well as detailed information of how the investment raised will be spent.

Of course, these changes do not detract from the fact that both SEIS and EIS remain attractive for UK investors However, the added complexities of gaining assurance of qualifying EIS status is likely to make it increasingly difficult for some UK companies to gain traction with some serial EIS investors. Anderson Anderson and Brown’s Expertise to Entrepreneurs’ to Expertise (“E2”) team can share their practical experience and help you through these recent changes.

For more information contact Lynn Wilson, Tax Senior Manager (lynn.wilson@aab.uk) or your usual AAB Advisor.