Discovering that you are being investigated by HMRC can be very stressful, even if you are...
Key Business Consultants was founded as an SEIS tax specialist firm, so we always stay on top of the latest SEIS changes.
Last week the government introduced some new SEIS changes. In today's article, we'll tell you exactly what you need to know.
Qualifying Conditions for SEIS
As SEIS experts, we've always recommended the scheme to our clients as a great way to raise funds quickly and tax-efficiently.
However, there are some qualifying conditions that you have to meet in order to use the scheme. In particular, the shares that are issued:
- must be subscribed for cash
- mustn't be issued in consideration for debt
- must be fully paid up
This can be a problem if the investment is part of a "bridging round" where the shares won't be formally valued until a later round of funding.
Advance Subscription Agreements
The official documentation from HMRC concerns something called Advance Subscription Agreements (ASAs).
An ASA allows you to invest in a company well before you receive your shares. It's a way for the company to raise money as quickly as possible. This can be especially helpful when the company is young and can't value its shares accurately.
It's typically a fairly simple agreement, but it's important to follow the rules.
HMRC has always offered something called advanced assurance.
Companies can submit details of their plans to raise money, their structure, and their activities in advance of an issue of shares. Then a body called the Small Companies Enterprise Centre (SCEC) will advise on whether or not the proposed share issue is likely to qualify for relief.
Until this month, HMRC hasn't issued any specific guidance relating to ASAs.
SEIS Changes For January 2020
The new guidelines look like they've been written to close a specific loophole. According to HMRC:
The ASA must not function as an investment instrument that offers other benefits, such as investor protection. The subscription payment must not be in effect a loan.
According to the new rules, ASAs must specify that the agreement:
- Does not permit the subscription payment to be refunded under any circumstances
- Cannot be varied, cancelled, or assigned
- Bears no interest charge
- Has a longstop date (expected to be no more than 6 months from the date of the agreement)
This also affects advanced assurance. From now on, if you want to apply for advanced assurance you have to do so BEFORE you arrange the ASA.
If these changes affect you, or you'd like to discuss any aspect of SEIS with one of our experts, please get in touch.