There are long and complex rules relating to the type of company, investor and investment which qualify for S/EIS investment. Basic details can be found in HMRC’s guidance, and a few of the main conditions are as follows:
- the company must not have gross assets of more than £200,000 immediately before share issue (note this means that if the company is also receiving additional funding at or around the same time as the SEIS investment, the SEIS investment must happen before the remaining money is provided to the company);
- it must be unquoted and fewer than 25 “full time equivalent” employees;
- a company cannot raise more than £150,000 in SEIS investment in total;
- the company must exist wholly for the purpose of carrying on a new qualifying trade (the trade must not be more than 2 years old and the company must not have carried on any other trade); and
- employees can qualify if they are also directors (note this means that founders may be able to qualify for SEIS in certain circumstances).
- the company must not have gross assets of more than £15,000,000 immediately before the share issue and fewer than 250 “full time equivalent” employees
- a company cannot raise more than £5,000,000 (£10,000,000 for knowledge intensive company ‘KIC’) in a year or more than £12,000,000 in lifetime (£20,000,000 for a KIC)
- if the company made its first commercial sale more than 7 years prior to the investment (10 years for a KIC) it is more difficult to qualify for EIS; and
- an investor who has shares in the company which are not subscriber/SEIS/EIS shares cannot qualify for EIS on any further issue of shares.
For both schemes:
- The company must have a permanent establishment in the UK (holding companies can qualify provided they have sufficient presence in the UK to meet this requirement);
- The company must carry on a qualifying trade (this also includes preparing to carry on a trade and carrying out R&D which will lead to a qualifying trade), and certain types of activity are excluded (if carried on to a ‘substantial’ extent). One potential trap here is that the exploitation of intellectual property which was not created by the company itself is excluded;
- The company cannot be controlled by any corporate, or corporate together with persons connected with that corporate (where there is any corporate shareholder, this must be examined carefully); and
The money must be spent on investment in the qualifying trade (and there are certain applicable time limits).