Dive into the world of PAYE investigations. Uncover the facts, implications, and insights in this informative blog
If you want to qualify for SEIS, there are several important thing you have to avoid.
We have a lot of fantastic information on this blog already about how to qualify for SEIS. In today's article, we'll tell you our top five things to avoid.
1. Being a non-director employee before investing in the company
You can't invest in a company if you are an employee. You are deemed to be "connected" and therefore are forbidden from using an SEIS scheme. This also applies to directors, with one caveat. As long as you wait until the shares are issued, you can become a director after the investment.
So, if you want to be both an SEIS investor and a director, just make sure you get the sequencing right. Subscribe for the shares, receive the shares and only then become a director.
As it's important to get this right, you may prefer to work with an SEIS specialist firm to make sure you're fully compliant.
2. Receiving benefit whilst being an investor
According to the official HMRC documentation, you must not have a "substantial interest" in the company you want to invest in:
A 'substantial interest' means controlling the company, or possessing more than 30% of the company’s share capital or more than 30% of the voting power in the company, or being entitled to more than 30% of the company’s assets in a winding-up.
There are also restrictions on "linked loans". The company is not allowed to lend money to the investor if the loan is in some way "linked" or connected to the share issue.
Once again we would urge you to work with an SEIS specialist in this area, as the rules can be complicated, especially in cases where debt/credit is "assigned".
3. Forming an ineligible subsidiary or abusing "arrangements"
HMRC has introduced rules to make sure that business owners cannot form subsidiaries with the express purposes of attracting SEIS funding.
During the 3 year period, the company that is attracting the investment cannot be a subsidiary of another company. Nor can there be "arrangements" in place for it to become a subsidiary.
The company attracting the investment must exist so as to carry on a qualifying trade. There are certain restricted trades, and also some rules around providing services to restricted trades by a "connected person".
For all the details, check out our article on what constitutes a qualifying trade for SEIS.
4. Not spending the funds within the time limits
Once the funds have been raised, you must spend them within the prescribed time limits:
- SEIS: within 3 years of the shares being issued
- EIS: within 2 years of the shares being issued
The money must be spent for the purposes of:
- A qualifying trade
- Preparing to carry out a qualifying trade
- R&D that's expected to lead to a qualifying trade
5. Sending HMRC incorrect documents leading to rejection
There are two main ways to apply to HMRC for SEIS.
We recommend trying to get something called "advanced assurance" before you make the official application. It's not compulsory, but it can streamline the application process and is great for attracting investors.
This is something that an SEIS expert can help you with. Check out our advanced assurance page for all the information.
Alternatively, you can apply directly to HMRC via form EIS1. You'll need to make sure that your paperwork is up to date and that you don't forget to send anything to them. Sending incomplete or incorrect paperwork can lead to your application being rejected.
If you are rejected, you can end up losing your available investment cap. The HMRC page on how to apply for SEIS has a checklist with all the details.
If you'd like to discuss how we can help you unlock your business' potential via SEIS, please get in touch.