Creative Industry Tax Reliefs (CITR) are a collection of Corporation Tax reliefs that allow qualifying companies...
The schemes are similar, with the SEIS more focused on very early-stage companies. The SEIS scheme complements the EIS and Venture Capital Trust (VCT) but focuses on smaller, early-stage companies that are starting to trade. SEIS investments carry the highest risk and conversely offer the highest potential tax reliefs for investors.
Companies seeking EIS investment are typically more developed than those looking for funding using the SEIS and the investment limits and tax reliefs available reflect this. The EIS encourages investors to purchase new shares in these companies by offering a wide range of tax reliefs.
The maximum amount of funds that a company can raise through investments qualifying for SEIS is £150,000. Under the EIS the maximum is £5,000,000 in any 12 months with a maximum of £12,000,000 over the lifetime of the company. There are higher limits for ‘knowledge-intensive’ companies.
The investments must also meet the risk to capital condition, which means the company raising finance must use the money for growth and development and that the investment should be a risk to the investor’s capital.
We would always recommend getting pre-approval from HMRC as to whether your company is eligible. It is important to note that the advance assurance service provided by HMRC is a discretionary, non-statutory, service.
HMRC no longer provides advance assurance on speculative applications. This leaves some start-ups in a Catch-22 situation where it can be hard to attract investment without advance assurance.
However, HMRC does not require the company to have formalised offers of investment but rather to have some potential investors on board who are likely to invest if advance assurance is granted.
A company looking to raise finance using both the SEIS and EIS must raise investment first using the SEIS before moving on to the EIS assuming all the relevant conditions are satisfied.
If a company issues shares under EIS then it is no longer possible to go back and issue shares under SEIS. However, it is possible to apply for both the SEIS and EIS at the same time.
In fact, there are many companies that choose to raise funding under the SEIS and EIS at the same time. This means that once the company passes the £150,000 SEIS limit they will almost immediately be able to move on and raise additional funds of up to £5,000,000 or more using the EIS.
Potential investors would usually be allocated the SEIS shares on a first come, first served basis with remaining investors offered EIS shares after the initial SEIS limit is used. In some cases, investors may wish to subscribe for shares in both the SEIS and EIS.
Companies raising finance in this way must ensure that they do so within the stated rules. HMRC’s guidance is clear that investments cannot be raised under the SEIS and EIS on the same day and that the investments must be raised in a stated order, SEIS first and then EIS.
The EIS investments must always be raised at least one day after any SEIS investments. This change applied to all investments made on or after 6 April 2015.
It is also important to remember that the shares must not be issued until after they have been fully paid-up for. The company must therefore have a way to accept payment before any shares are issued.
Finally, HMRC’s guidance is also clear that EIS investors will not lose entitlement to relief where an SEIS investor redeems their shares before the end of the three year holding period, provided the SEIS investor repays any tax relief on the redeemed shares.
As always, it's best to get professional advice before tackling the complexities of tax relief and investment schemes.