The Next Alexa? Surfing the IP Challenges for Artificial Intelligence
13 September 2018
The HMRC approved Seed Enterprise Investment Scheme (SEIS) offers investors in UK start-ups generous tax reliefs. We offer expertise for the entire process from technical analysis on how to qualify for SEIS, obtaining HMRC approval through to providing the investment documentation for the share issue under the Seed Enterprise Investment Scheme.
SEIS is aimed at start up companies. HMRC recognises the risks are greater and therefore offers more generous tax reliefs than it does under EIS. EIS investment limits are higher but the tax relief is lower. Many businesses start off with SEIS and then move onto EIS once they are more established.
We offer starter packages for the SEIS advance assurance process starting from £900 plus VAT if no articles or shareholders agreement are required; or £2,200 plus VAT for companies that do require bespoke articles or a shareholders agreement.
We also offer a “no-win, no-fee” type arrangement, where we will process the advance assurance with HMRC for the Seed Enterprise Investment Scheme but defer payment of a flat fee of £5,000 until you have received £50,000 of investment.
We come across many companies who have promised their investors SEIS tax relief but then find that the shares do not qualify. HMRC does not make it easy and the rules can be intricate. We have secured SEIS assurance from HMRC for many clients across many sectors over the years. Our work has given us the expertiseto help you remove stress and uncertainty.
The Seed Enterprise Investment Scheme is rapidly gaining traction.
Latest statistics published by the Government relating to the Seed Enterprise Investment Scheme indicate:
We look at:
The key tax reliefs under SEIS for the investor are:
HMRC does lay down requirements for companies to qualify for SEIS. Some of the basic requirements include:
There are stumbling blocks involved in implementation. Often problems only come to light once investors have subscribed for shares thinking they can claim SEIS tax relief.
Some of the most common stumbling blocks we can help you address include:
There is always a balance between:
We discuss what protections the founders could offer investors. Most founders don’t want investors unduly interfering in the day-to-day company management. Also, we consider the long-term implications of taking new minority shareholders on board.
This is a common reason for failure under the Seed Enterprise Investment Scheme. SEIS legislation requires that shares are issued only to investors who have paid in full. Sounds simple, but problems arise where there is delay in opening bank accounts.
An investor may accidentally temporarily hold more than 30% of the shares, because of delays in issuing shares to other investors. There are some tricks you can use to avoid this risk.
This 30% threshold can also be accidentally breached as the shareholding of “associates” is taken into account. If business partners, trustees or certain close relatives (spouse, parents, children, grandchildren) of an investor choose to invest in the same company and the total shareholding of the investor plus the associate exceeds 30%, the benefits of SEIS are lost.
Investors naturally look out for their own interests and might request preference shares. A preference will cause the loss of tax benefits under the Seed Enterprise Investment Scheme. The shares must be full risk, ordinary shares. If the company is wound up, the investor must rank equally with other shareholders. At best, the investor can negotiate preferential rights to dividends.
HMRC do not object to standard articles downloaded for free when the company was incorporated. However, shareholders are unlikely to be properly protected. Basic rights that can enable the sale of the company, such as drag and tag rights, are not included with standard articles. Problems are solved via the use of bespoke articles and or a shareholders’ agreement.
Consider the following scenario: Thinking Big Ltd is a UK resident company in the creative industry. The company seeks investors to ‘kick start’ a new business venture. The company currently has:
Thinking Big Ltd wants to raise £140,000 and has not raised any other funds. Will Thinking Big Ltd qualify for SEIS?
Answer: Thinking Big Ltd should qualify for SEIS because:
Relief for investors is only available once 70% of the monies have been spent or the business has been trading for 4 months.
Companies may apply to HMRC for advance assurance and must submit a formal compliance statement.
Mr Vestor wants to invest £100,000 for 25% of the equity in ordinary shares, and an employee wants to invest £50,000 for 12.5% equity. Can Mr Vestor obtain SEIS tax relief on his £100,000 investment? Most likely yes because, he is:
Can the employee invest? Most likely “no” because:
You cannot get tax relief under the SEIS scheme if you are paid a salary at anytime from three years commencing on the date of the share issue.
However, the employee could obtain tax relief by other means:
Mr Vestor will receive a 50% reduction in income tax on his £100,000 investment, which is the maximum available per annum. After three years, Mr Vestor could be eligible for capital gains tax exemption when he disposes of his shares, as long as he remains a qualifying investor.
If Mr Vestor has realised chargeable gains in the current tax year, these may be permanently reduced by 50%.
Investors and companies must plan and execute the investment transactions with care. Otherwise you can inadvertently lose the relief if the statutory conditions are not met. If managed correctly, Mr Vestor’s tax relief under SEIS based on the current legislation would be:
On subscription: income tax relief £100,000 @50% = £50,000
On re-investment following sale: Capital gains tax re-investment relief £100,000 @ (say) 20% x ½ = £10,000
On sale: Capital gains tax saved on disposal £200,000 – £100,000 @ 10% = £10,000
Maximum tax saved on initial investment of £100,000: £65,000.
We worked with Gannons on the SEIS advance assurance and the investment round. The work was urgent because the investors threatened to pull out unless the assurance was obtained. Gannons were exceptionally helpful in getting us over the line
We read a lot about SEIS and EIS online but wanted someone experienced to help us apply for the advance assurance process and issue shares. We got it right.