When it comes to fundraising for startups in the UK, both the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) play pivotal roles. These government-backed initiatives were created to stimulate economic growth by encouraging investments in small and growing businesses.
However, the two have distinct differences that cater to varying stages and sizes of startups. Let’s delve deeper into the nuances of SEIS and EIS.
1. Investment Limits:
SEIS: A company can raise up to £150,000 through SEIS investments.
– **EIS:** EIS allows companies to raise up to £5 million annually, with a lifetime limit of £12 million (or £20 million for “knowledge-intensive” companies).
2. Company Age:
SEIS: Targeted at very early-stage companies, those applying for SEIS must be trading for less than 2 years.
EIS: EIS is more flexible in this regard, accommodating companies that have been trading for up to 7 years (or 10 years for “knowledge-intensive” firms).
3. Size of the Company:
SEIS: Companies must have 25 or fewer employees.
EIS: Companies can have up to 250 employees, or 500 for those classed as “knowledge-intensive”.
4. Assets:
SEIS: Gross assets must be £200,000 or less before the issue of shares.
EIS: Companies can have gross assets up to £15 million before the share issue and £16 million immediately afterward.
5. Tax Reliefs:
Both schemes offer lucrative tax reliefs to investors:
SEIS: Provides 50% income tax relief on investments up to £100,000 per year, with potential for Capital Gains Tax (CGT) exemption on any gains.
EIS: Offers 30% income tax relief on investments up to £1 million (or £2 million if invested in “knowledge-intensive” companies) annually, with CGT deferral reliefs.
6. Use of Funds:
Both schemes mandate that funds raised must be used for a qualifying business activity. However, while SEIS mandates funds to be used within 3 years, EIS demands they be employed within 2 years.
Conclusion:
While both SEIS and EIS offer significant benefits for startups and investors alike, it’s crucial to understand their differences to determine which is more appropriate for your business stage and goals. Always consider seeking advice from a financial consultant or tax specialist when navigating these schemes to ensure compliance and maximum benefits.
Disclaimer: The above information is for general understanding and does not constitute financial advice. It’s recommended to consult with a financial advisor for tailored guidance.
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