A significant number of small businesses in the UK do not take full advantage of HMRC-approved...
The Seed Enterprise Investment Scheme (SEIS) rules allow some business owners to invest in their own company.
However, it is important to be aware of the restrictions on who can and cannot invest in a specific SEIS. Anyone connected with the company can't claim Income Tax relief within the SEIS.
Restrictions on SEIS
The main restrictions are as follows:
- The investor cannot be employed by the company at any time during the period from the date of issue of the shares, to the third anniversary of that date. A director is not deemed an employee however.
- An investor who controls or owns more than 30% of the shares, voting rights or assets either the company itself or a 51% subsidiary of the company cannot claim tax relief.
The interests of the investor’s associates are included in these restrictions. The SEIS legislation defines associates as:
- business partners
- trustees of any settlement of which the investor is a settler
- or beneficiary
HMRC defines relatives as spouses and civil partners, parents and grandparents, children and grandchildren. So, for example, parents could not invest in their children’s businesses.
How To Best Exploit SEIS
However, the list of associates does not include ‘family’ members such as siblings, extended family, partners and in-laws. This leaves an opening for new business owners to seek investment from their extended family. Importantly, these restrictions do not apply to directors who can invest. The rule is that they must not hold a substantial interest in the company.
However, HMRC is likely to closely examine the directors relationship with the company to ensure any investment qualifies under the SEIS rules.
HMRC can withdraw the tax reliefs:
- if the investor disposes of shares outside the scheme rules
- if the company loses it's qualifying status.
In addition, there is a significant body of anti-avoidance legislation that seeks to stop investments made for tax avoidance purposes.
We look forward to hearing from business owners who would like to know if they qualify to invest under the SEIS scheme.