SEIS relief can only be applied for by qualifying individuals in a new business carrying on a qualifying trade. Many small early-stage companies will be able to use the SEIS to raise funds. However, one of the important conditions to be met in order to be able to use the SEIS is to ensure that the qualifying trades conditions are met.
A qualifying trade is defined as HMRC as a trade which is conducted on a commercial basis with a view to the realisation of profit. Whilst most business activities qualify there are a number of important business types that are excluded.
While the list below indicates trades which are excluded there are also other options worth considering, including separating between excluded and permitted SEIS trades. Rigorous structures need to be put in place and usually accompanied by an SEIS pre-assurance application with full disclosure.
The list of trades that are excluded for the purposes of qualifying for SEIS include:
- Dealing with land, commodities and financial instruments
- Property development
- Providing legal or accountancy services
- Financial activities such as banking, insurance, debt-factoring or any other financial activities
- Operating or managing hotels or nursing/care homes
- Farming and market gardening
- Leasing or letting of assets on hire
- Operating or managing hotels
- Coal and steel production
From 6 April 2016, this list will be extended to include all energy generation activities.
A trade does not qualify if it consists wholly, or substantially, of ‘excluded activities’. A business wanting to use the SEIS to raise funds is allowed to carry on some excluded activities, but these must not form more than 20% of the company’s total activities.
There are a number of further conditions which must be met in order for a new business to use the scheme. For example, the scheme can only be used by small unquoted companies, AIM and PLUS Markets listed companies are eligible. The company must have gross assets of no more than £200,000 and less than 25 full-time employees. The maximum a company can raise using the SEIS is £150,000.