There are many benefits to the Seed Enterprise Investment Scheme (SEIS) both for individual investors and for start-up trading companies looking to raise finance.
The rules are also subject to change and this is where your SEIS tax specialist really earns his stripes.
However, even when all this has been completed there are clauses within the legislation that allows HMRC to withdraw or reduce SEIS relief.
This can usually happen if during the three years from the date shares are issued:
- the investor becomes employed by the company without being a director of the company
- the investor’s holding in the company becomes a ‘substantial interest’
- the shares cease to be eligible shares or there is a ‘put’ or ‘call’ option over them
- the company ceases to meet the qualifying conditions
- the company fails to spend the money raised by the share issue as required
There are also complex rules if the investor receives something of ‘value’ from the company or from a person connected with that company within three years of the shares being issued consequently in scenarios where an investor receives something ‘insignificant’, the value is ignored.
An amount is treated as insignificant if it does not exceed £1,000 or is insignificant in relation to the amount of shares held by the investor.
HMRC also has the power
- to withdraw relief where an HMRC officer discovers that the relief is excessive.
- HMRC has the power to acquire information where the investor or the company may not have fulfilled their reporting obligations.
Where SEIS relief is to be withdrawn, the amount of the reduction is the smaller of either:
- the amount of relief attributable to the shares, or
- a sum equal to tax at the SEIS rate on the amount or value of the consideration received.
Where the amount of relief attributable to the shares is less than tax at the SEIS rate on the amount originally subscribed the reduction to the relief is restricted proportionately.