By Yisroel Sulzbacher ACCA, Accounts Senior

Raising capital is one of the biggest barriers to growth for early-stage businesses and if you find yourself hunting around for cash, you might have already considered the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS).

These are Government-backed initiatives designed to encourage investment into smaller, higher-risk businesses by offering investors tax reliefs.

From a company perspective, they act as fundraising tools, making your business more attractive by reducing investor risk.

SEIS is aimed at very early-stage businesses, offering up to 50 per cent Income Tax relief but with lower funding limits, making it ideal for getting a business off the ground.

EIS, by contrast, supports businesses that are further along in their growth journey, offering up to 30 per cent Income Tax relief with higher investment limits, making it better suited to scaling an established model.

What SEIS and EIS actually do for your business

On a basic level, both the schemes make your company more investable because investors are more willing to take risks when tax relief reduces their downside.

Either scheme effectively increases the attractiveness of your offer without changing valuation.

Equally, they act to bridge the finding gap because where banks and traditional lenders will not engage (due to the inherent risks of startups), SEIS and EIS offer an alternative.

Which is right for your stage of growth?

SEIS is generally better for early-stage funding because…

• It has lower funding limits
• It has higher investor tax relief
• It is designed for newer businesses

EIS, on the other hand, can be good for scaling and expansion because…

• It has larger funding rounds
• It has a broader investor appeal
• It is suitable for more established businesses

Before you rush into choosing a scheme, it is always best to speak with an accountant and tax adviser as they’ll be able to better determine which is right for you.

Why investors care (and why you should too)

Understanding this question helps you position your business properly work out if either scheme is right for you.

For an investor, the attraction is often in the fact that Income Tax relief reduces their upfront risk and that the Capital Gains Tax benefits improve their upside potential.

In other words, they are set to make more money and have less chance of a loss.

Added to this is the fact that loss relief (i.e., a bit of a payback if your business doesn’t provide a return on investment), softens the downside of any loss to them.

How to structure your business to qualify

To meet the conditions to qualify for either the SEIS or EIS, you will need to do the following:

• Achieve the core conditions: There are trading activity requirements, gross asset limits and employee number thresholds which all come into play within SEIS and EIS.
• Get advance assurance: This is why early engagement with HMRC matters as it gives investors confidence before committing their funds.
• Issue the right shares: There is an ordinary shares requirement, and you must avoid preferential rights that break eligibility.

All of these sound incredibly complicated but they’re not when you have the right advice and guidance.

Using SEIS and EIS as part of your growth strategy

SEIS and EIS should form part of your wider growth strategy, not just be added in when you decide to raise money.

Many businesses use SEIS first to attract early-stage investment, then move into EIS as they grow and need larger funding rounds.

SEIS and EIS can also sit alongside other funding routes, such as grants, debt finance and private investment, but this needs careful planning to avoid affecting eligibility.

This is where an accountant adds real value.

We can assess whether your business qualifies, help structure things correctly, support advance assurance applications and make sure you stay compliant, so the relief is not withdrawn.

If you would like help applying SEIS and EIS to your business strategy, please contact our team.