1. The Seed Enterprise Investment Scheme
(SEIS The Day!)

2. Introduction
• Jonathan Lea
• @jonathanlea
• http://jonathanlea.com

3. What is SEIS?
• SEIS offers investors generous tax reliefs for investing in
startups and early stage ventures
• Introduced in December 2011 to take effect from 6 April 2012
(subject to the formality of Royal Assent in July 2012)

4. Why SEIS?
• The equity gap
• Develop culture of investing in startups, innovation and
entrepreneurship
• Bank lending

5. Tax Reliefs
• 50% income tax relief
• Complete exemption from CGT on disposal
• Capital gains re-investment relief worth 28% in the first year
(2012/13 only) of the Seed Enterprise Investment Scheme
• Loss relief if investment fails
• Inheritance tax relief after two years
• Unused relief in one tax year can be carried back to the
preceding tax year if there is unused relief available for that
year
• Once at least 70 per cent of the monies raised by the SEIS
issue are spent, the company can raise additional funds by
taking advantage of the EIS regime or investment from a
Venture Capital Trust.

6. The SEIS Rules
Investors Companies
• Shares must be paid in full when • Max investment is £150,000 (maximum
annual investment of £100,000).
issued
• The company must not have previously
• You must not have ‘substantial received investments under the EIS or
interest’ in the company VCT schemes
• Any trade being carried on by the
• Neither you nor any of your company at the date of issue of the
associates may be employed by the shares, must be less than two years old
company • UK resident (or have a UK permanent
establishment)
• You must satisfy the criteria for three
• Fewer than 25 full time employees
entire years from the issue date • Assets of not more than £200,000
• Investment must be spent for the
purposes of a qualifying business
activity within 3 years of the investment
(all of the money)
• Qualifying shares

7. Example 1
Jane invests £50,000 under the SEIS in the tax year 2012/13. Jane
works out her annual income then calculates how much tax she
has to pay taking into account her personal allowance, which
results in an income tax liability of £40,000. After three years
Jane sells the SEIS shares for £75,000.
By claiming the 50% SEIS Relief on the £50,000 invested, her
income tax liability is reduced by £25,000 from £40,000 to
£15,000. She therefore holds an investment worth £50,000 at the
time of investment which has only cost her £25,000. Any capital
gains on this investment after 3 years will be capital gains tax
free, saving tax again then. After three years Jane sells the SEIS
shares for £75,000. There is no capital gains tax to pay, saving
£7,000. Jane’s investment which had a net cost to her of £25,000
has returned her £75,000 after tax – 3 times her net cost.

8. Example 2
Stephen invests £25,000 under the SEIS in the tax year 2012/13. His
income tax liability for the year is £35,000. He also expects to realise a
capital gain of £25,000 on the disposal of some shares in companies
listed on the stock exchange. The shares are sold after 3 years for
£50,000.
By claiming SEIS Relief and SEIS Reinvestment Relief Stephen reduces his
income tax liability by £12,500 to £22,500, and he saves capital gains
tax of £7,000. In total he saves £19,500 in tax by investing £25,000
under the SEIS, making the net cost of his £25,000 investment just
£5,500.
Under SEIS, Stephen does not have to pay capital gains tax on the gain
of £25,000 saving Stephen a further £7,000. His post-tax return on a
£25,000 investment under the SEIS which cost him £5,500 after the
initial income tax and CGT reliefs, is £50,000 – or more than 9 times his
net cost.

9. Example 3
Joseph invests £20,000 under the SEIS in the tax year 2012/13. His
income tax liability for the year is £20,000. He also expects to realise a
capital gain of £20,000 on the disposal of a buy-to-let property.
Unfortunately Joseph’s investment was not successful and had to be
written off entirely.
He saves a total of £15,600 by investing £20,000 under the SEIS, making
the net cost of his investment only £4,400 of which he holds shares
worth £20,000 at the time of investment. Joseph may still however save
more income tax by claiming share loss relief on the amount of his
investment after deducting income tax relief already received. In this
case he has already received £10,000 in SEIS Relief i.e. 50% of his
original investment of £20,000 so he may claim loss relief on the
remaining £10,000. At the time of the loss claim his tax rate is
45%, giving him £4,500 in further income tax relief. Overall despite the
unsuccessful outcome of the investment, Joseph’s £20,000 has been
more than covered by the savings he has in income tax and capital gains
tax which add up to £20,100.

10. Procedure for using SEIS
HMRC assistance in advance of an issue of shares
Advance assurance facility for SEIS - allows companies to submit details of their plans
to raise money, their structure and their activities in advance of an issue of shares,
so that the SCEC can advise on whether or not the proposed share issue is likely to
qualify for relief.
Form SEIS (AA): company details, how much being raised, what used for, attach
documents such as company accounts, latest draft of business plan to be issued to
investors, articles of association, subscription agreement
HMRC officer will need to be satisfied that the company is a qualifying company, the
shares will be eligible shares, the shares will be issued to raise money for a qualifying
business activity and the company satisfies the rules of the scheme
The onus is on the company to provide all relevant and accurate information and
draw attention to any issues which they are not clear meet the scheme
requirements
Companies are not required to obtain such an assurance

11. Formal company approval following an issue of shares
Before investors can claim any tax relief, the company must complete form
SEIS 1
Declaration that at the time of completion, the company has already met
the requirements of the scheme to the extent that those requirements
have to be met at the time of issue of the shares and to the date of the
declaration; and that it expects to meet all other requirements.
The company cannot submit an SEIS1 until either it has been trading for at
least four months; or if not yet trading, it has spent at least 70 per cent of
the monies raised by the relevant issue of shares
If the SCEC accepts that the company, its activities, and the shares all meet
the requirements of the scheme, it will issue the company with a certificate
to that effect, and will supply claim forms (SEIS3s) for the company to send
to the investors so they can claim tax relief.

12. Qualifying Business Activities
A qualifying trade is one which is conducted on a commercial basis with a view to the realisation
of profit.
A trade is not a qualifying trade if it consists of certain activities, or if such activities amount, in
aggregate, to a ‘substantial part ‘ (generally no more than 20%). Excluded activities are:
dealing in land or property development
dealing in commodities or futures, shares, securities or other financial instruments,
banking, insurance, money lending, debt factoring, hire purchase financing or other
financial activities
Leasing, including the letting of assets on hire
receiving royalties or licence fees (subject to waivers, principally that company
created the IPR)
providing legal or accountancy services
farming and market gardening
activities concerned with forestry and timber production
shipbuilding
coal production
steel production
operating or managing hotels and similar establishments
operating or managing nursing homes and residential care homes

13. Completing a SEIS investment
• Business plan, executive summary, pitch presentation
• Term sheet
• Due diligence
• Investment agreement, Shareholder resolutions, Board
minutes, SH01 form (statement of capital), Share certificate,
update company books

14. Where to find SEIS investors?
• SEIS seed funds like Ascension Ventures and Jenson Solutions
• Angel investor networks like Angel’s Den and London Business
Angels
• Equity crowdfunding portals like Crowdcube and Seedrs