About SEIS / EIS
The shares offered by some companies through Fireflock may qualify for the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS), which dependent on the investor's individual circumstances and the company's circumstances may offer a number of different tax reliefs. This page is by no means a definitive guide or advice on the two schemes and Fireflock does not make any representations as to the eligibility of the Company or the Investor going forward as, amongst other reasons, the continuing eligibility is dependent on the conduct and circumstances of the company and the investor going forward. If in doubt you should seek independent advice.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme (SEIS) is an incentive designed to encourage investment into startups and growth businesses.
Introduced by Chancellor George Osborne in his 2011 Autumn Statement, SEIS offers a number of tax breaks to investors. Qualifying SEIS companies will need to satisfy certain distinct criteria, including (but not limited to) …
- Must have been incorporated within the last 2 years
- Must have no more than 50 employees
- Must have gross assets of less than £200,000
The benefits to the investor can be considerable…
Income tax relief is 50% (you receive a £2,500 reduction in your income tax bill for investing £5,000 in a qualifying SEIS company)
There is no capital gains tax to pay on profits
No inheritance tax to pay on the transfer of a qualifying SEIS asset
You can claim loss relief in the event an investment fails
In short, from a £5,000 investment in the tax year 2014/15 - if a SEIS qualifying investment were to fail, the total loss an investor would suffer (assuming they had paid enough tax to cover the reclaim) would be just £675 (ie £4,325 would be recoverable from the total £5,000 investment).
Investors are able to invest up to £100,000 in a single tax year in SEIS qualifying companies.
The companies themselves can raise a total of £150,000 under the SEIS scheme.
It is highly recommended that you seek professional Tax advice in relation to SEIS and your investments. Tax legislation is subject to change.
Enterprise Investment Scheme (EIS)
The Enterprise Investment Scheme (EIS) is a government sponsored tax incentive program designed to encourage individuals to invest in smaller businesses by offering various tax reliefs to those that purchase new shares in those companies. EIS qualifying shares must be subscribed wholly in cash (which includes payment by cheque and bank transfer) and the cash must be paid in full by the time the shares are issued. Shares must be held for at least three years after issue or, if later, three years after the company begins trading.
The relief consists of an initial 30% income tax saving and exemption from capital gains tax when the EIS shares are sold. It may also be possible for EIS shareholders to defer existing capital gains liabilities by ‘rolling’ it into an EIS qualifying share issue (this is known as ‘EIS reinvestment relief’), details for which can be examined in closer details via the HMRC link below.
The immediate benefit to an investor is to reduce the individual's income tax liability for the year of the share issue by 30% of the subscription amount. This effectively means that up to 30% of the cost of the individual's share investment will be paid for by HM Revenue & Customs. There are no minimum investment requirements in order to take advantage of the relief, however it is limited to no more than £1million per financial year per investor and there is no carry-over into next financial year. There is no capital gains tax payable upon disposal, provided shares have been held for a minimum of three years or, if later, three years after the company begins to carry on a qualifying trade. In the event a loss is realised, investors can elect for the amount of that loss, less any income tax relief given, to be set against income made in the year in which the shares were disposed of, or any income from the previous year, instead of being set off against any capital gains.
For a comprehensive overview of EIS please consult HMRC’s guide by clicking here .