Why Every UK Founder Should Understand SEIS & EIS

When raising funds for a startup in the UK, it’s essential that founders understand the role of tax-efficient investment schemes like SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme). These two HMRC-approved initiatives are not only well-known among angel investors and early-stage venture capitalists, but they can also significantly increase your chances of closing a funding round - especially during the riskiest stages of company growth.

This article provides an in-depth, practical guide to SEIS and EIS, explaining how they work, who qualifies, why investors value them and how founders can use them effectively when fundraising.

What Are SEIS and EIS?

SEIS and EIS are UK government tax relief schemes introduced by HMRC to encourage private investment into small, high-risk businesses. By reducing the personal financial risk for investors, these schemes make it easier for early-stage companies to raise money.

Both schemes offer income tax relief, capital gains benefits and loss relief to investors. While they both serve a similar purpose, they are each designed for different stages of a company’s journey:

Seed Enterprise Investment Scheme (SEIS)

• For very early-stage companies, typically at the pre-seed or seed stage.
  

• Investors can claim up to 50% income tax relief on investments up to £100,000 per tax year.
  

• Companies can raise a maximum of £250,000 through SEIS.
  

• Shares must be held for at least three years to qualify for full relief.
  

• Investors also benefit from Capital Gains Tax (CGT) exemption and loss relief if the business fails.
  

Enterprise Investment Scheme (EIS)

• Designed for growth-stage companies looking to scale.
  

• Investors receive 30% income tax relief on investments up to £1 million per year, or up to £2 million if the company is knowledge-intensive.
  

• Companies can raise up to £12 million through EIS (or £20 million for knowledge-intensive businesses).
  

• CGT exemption applies after three years.
  

• EIS shares can also offer loss relief, which can be offset against income or capital gains.
  

Key Differences Between SEIS and EIS

Why Investors Value SEIS and EIS

SEIS and EIS reduce the financial risk associated with investing in early-stage ventures. This makes them highly attractive to private investors, particularly angel investors and family offices.

Investor Benefits:

1. Tax Relief: Substantial income tax relief on invested capital.
   

2. Capital Gains Exemption: No CGT on profits from qualifying shares.
   

3. Loss Relief: If the company fails, investors can offset the loss against their income tax.
   

4. Deferral of Capital Gains: For EIS, investors can defer CGT on other gains if they reinvest into an EIS-eligible company.

By offering generous tax advantages, these schemes increase the pool of willing investors and can tilt decisions in favour of riskier but innovative startups.

Advance Assurance: Why It Matters

Before raising SEIS or EIS funds, many startups apply for Advance Assurance which is a form of pre-approval from HMRC indicating that the company is likely to qualify for the scheme.

Benefits of Advance Assurance:

• Demonstrates to investors that your company qualifies for SEIS/EIS.
  

• Reduces uncertainty and builds credibility.
  

• Speeds up fundraising by removing a common objection.
  

Requirements for Advance Assurance:

• A business plan and financial forecasts.
  

• Cap table and shareholder breakdown.
  

• A description of your trade and how funds will be used.
  

• Evidence of a potential investor (a letter of intent or email is often enough).
  

Advance Assurance is not legally required, but many investors will not proceed without it. Some venture capital firms and angel networks include it as a checklist item before engaging.

Can Companies Use Both SEIS and EIS?

Yes, founders often structure funding rounds to take advantage of both schemes, but they must be used in the correct order.

How It Works:

1. Raise your first £250,000 under SEIS.
   

2. Once SEIS shares are issued, subsequent funding can qualify for EIS.
   

3. You must issue SEIS shares first (even if only one day before the EIS round).
   

4. You cannot issue EIS shares before SEIS shares if you want investors to claim SEIS relief.
   
   

To remain compliant:

• Use separate share certificates and clearly distinguish share issue dates.
  

• Track the allocation of funds carefully to avoid disqualifying either round.

Qualifying Criteria for Startups

To be eligible for SEIS or EIS, your company must meet several conditions:

For SEIS:

• Less than 3 years old.
  

• Fewer than 25 employees.
  

• Gross assets under £350,000.
  

• Permanent establishment in the UK.
  

• Not trading on a recognised stock exchange.
  
  

For EIS:

• Less than 7 years old (10 years for knowledge-intensive companies).
  

• Fewer than 250 employees.
  

• Gross assets under £15 million.
  

• Not previously raised more than £12 million under EIS.
  

In both cases, the funds raised must be used for a qualifying trade and within a specified time:

• SEIS: Funds must be spent within 3 years.

• EIS: Funds must be spent within 2 years.
  

Disqualifying activities include property development, banking, legal services, and some financial services.

How to Leverage SEIS/EIS in Fundraising

1. Build a SEIS/EIS-Ready Data Room

Ensure all necessary documents are easily accessible for investors:

• Advance Assurance letter.
  

• Business plan and use of funds.
  

• Capitalisation table.
  

• SEIS/EIS share certificates and compliance statements.
  
  

2. Include SEIS/EIS in Pitch Decks

Many investors may not be familiar with the schemes. Include a slide explaining:

• The tax relief available.
  

• Confirmation of Advance Assurance.
  

• Guidance on how they can claim relief post-investment.
  
  

3. Use Specialist Support

HMRC’s rules can be technical and change periodically. Working with accountants or legal services experienced in SEIS/EIS can:

• Avoid costly mistakes.
  

• Ensure your application is robust.
  

• Save time navigating documentation.
  
  

Services like SeedLegals, Startups.co.uk and Sleek UK offer affordable solutions for managing SEIS/ EIS compliance.

Common Mistakes to Avoid

SEIS & EIS Eligibility Checklist

✅ Do you have a permanent establishment in the UK?
✅ Does your company meet employee and asset limits?
✅ Are you operating a qualifying trade?
✅ Have you obtained (or applied for) Advance Assurance?
✅ Are funds allocated to eligible uses (e.g. product development, hiring)?
✅ Is your cap table investor-friendly and compliant?

If you answered yes to all, you’re likely in a strong position to benefit from SEIS or EIS.

A Strategic Tool, Not Just a Tax Relief

While SEIS and EIS are often discussed in terms of tax benefits, they’re much more than that. These schemes can accelerate your fundraising efforts, open doors to more investors and give you a competitive advantage when scaling your startup.

Founders who embed SEIS/ EIS planning into their early fundraising strategy signal professionalism, foresight, and credibility. In a competitive investment landscape, that could make all the difference.

FAQs

Can I use SEIS and EIS in the same round?
Yes, as long as SEIS shares are issued before EIS shares.

How long does Advance Assurance take?
Typically 4-6 weeks, but timelines vary.

Can company directors invest?
Yes. Directors can invest under SEIS or EIS, but with some restrictions. SEIS is more flexible for directors.

What if I don’t have an investor yet?
A letter of intent or a prospective investor email is usually enough to apply for Advance Assurance.

Can I lose eligibility after approval?
Yes. If your business changes significantly, or if you don’t follow HMRC rules, your company could become ineligible and investors may lose relief.