Discovering that you are being investigated by HMRC can be very stressful, even if you are...
Today we're going to give you our top 10 SEIS tips:
- The SEIS scheme is designed for early stage businesses and start-ups to raise up to £150,000 in seed capital. The scheme works by offering investors significant tax breaks to invest in new companies. It is the availability of these tax breaks that drive the investment in new start-ups.
- There are generous Income Tax and Capital Gains Tax (CGT) reliefs for investors each of whom can invest a maximum of £100,000 per tax year in qualifying businesses. The investments can be spread across a number of different SEIS opportunities. Note that the investment must be made by an individual rather than a corporate entity or trust.
- Both the investor and the investee must meet certain qualifying requirements after the SEIS share issue to ensure that tax relief is available. For example, investors must hold their SEIS shares for at least 3 years from the issue date in order to benefit from certain CGT reliefs. In addition, the start-up company must spend all the monies raised under the SEIS on a qualifying business activity within 3 years.
- Directors of the company raising finance may invest under the SEIS but only if they do not hold more than 30% of the company’s issued share capital or of its voting rights or of the rights to its assets in a winding up. The investor can also not be an employee or have a close relative as an employee.
- HMRC defines a qualifying trade as one conducted on a commercial basis with a view to the realisation of profit. Whilst most business activities qualify there are several important business types that don't.
- To qualify to use the SEIS the company must have been active for less than 2 years. There must be less than 25 employees. Furthermore, the company must have net balance sheet assets of less than £200,000.
- Although not strictly SEIS relief, an SEIS investment will normally qualify for 100% relief from Inheritance Tax after two years. This assumes you've met the usual conditions.
- The maximum amount of funds that a company can raise through investments qualifying for SEIS is £150,000. The company cannot have received any investment under either EIS or VCT before using SEIS to raise investment. You can raise further investment using the EIS or VCT scheme after the SEIS.
- There are significant administrative hurdles to clear in order to be compliant with all the various SEIS rules. It is important to take proper advice and seek advance assurance from HMRC of qualifying status if you are unsure.
- SEIS tips for foreign companies: under certain circumstances, a foreign company can also benefit from using the SEIS. This can help foreign companies raise money from the UK. It also provide UK taxpayers with a wider range of investment options.
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