SEED ENTERPRISE INVESTMENT SCHEME (SEIS)
What is it?
It is an HM Revenue & Customs approved scheme to help small, new Limited Companies to raise equity finance.
What Companies does it apply to?
Carries on a qualified trade (see Appendix).
Not a quoted Company.
Been trading for less than two years.
Have fewer than 25 employees.
Have less than £250,001 of gross assets (plant, stock, debtors, cash, etc.).
Must be its first trade since incorporation.
Must not be controlled by another Company.
Must be UK resident.
How much SEIS funds can be raised?
This is limited to £150,000.
How long has the Company got to spend the money?
Within three years of the date the shares are issued.
Who can get tax relief?
Any individual subscribing for new ordinary shares which must be held for three years.
The shares must be paid for.
70% of the money invested must be spent before relief can be claimed.
The individual cannot, with their direct relatives, control more than 30% of the Company.
The individual cannot be an employee of the Company within three years unless they are also a Director.
Cont/d......
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How much tax relief can I get?
50% of an annual investment up to a maximum of £100,000 regardless of the rate of income tax payable, and
Capital Gains Tax relief of the value invested but for 2012/13 only.
No Capital Gains Tax on a sale of the SEIS shares after three years.
When does it start?
From 6th April 2012 for the 2012/13 tax year.
How do I lose my SEIS relief?
If within three years you become an employee without being a Director.
You end up controlling more than 30% with your associates.
The Company ceases to be qualifying.
You sell the shares within three years or receive value from the Company.
Summary
This may well become a major tax relief as well as providing very important funding for Small Companies.
In the above examples the individual could get £7,800 of tax relief for an investment of £10,000, a maximum tax relief of 78%.
All this and a Capital Gains Tax free disposal after three years.
As with all things the actual legislation for SEIS is complex and, as this is purely a simple guide, detailed advice should be obtained prior to entering into an SEIS investment.
APPENDIX
What is a Qualifying Trade?
A qualifying trade is one which is conducted on a commercial basis with a view to the realisation of profit.
Most trades qualify, but some do not. A trade does not qualify if it consists wholly, or substantially, of ‘excluded activities’. HM Revenue & Customs won’t regard activities as ‘substantial’ unless they are more than 20% of the whole.
The following activities are excluded:-
Dealing in land, in commodities or futures in shares, securities or other financial instruments.
Dealing in goods, other than in an ordinary trade of retail or wholesale distribution.
Financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities.
Leasing or letting assets on hire, except in the case of certain ship-chartering activities.
Receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the Company itself has created, that is not an excluded activity).
Providing legal or accountancy services.
Property development.
Farming or market gardening.
Holding, managing or occupying woodlands, any other forestry activities or timber production.
Shipbuilding.
Coal production.
Steel production.
Operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment.
Operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home.
Generating or exporting electricity which will attract a Feed-in Tariff, unless generated by hydro power or anaerobic digestion, or unless carried on by a community interest Company, a co-operative society, a community benefit society or a Northern Ireland Industrial and provident society.
Providing services to another person where that person’s trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the Company providing the services.