How To Use The SEIS To Attract More Investors To Your Startup

Raising investment can be incredibly tough for early-stage startups. Most of the time they haven’t even launched yet, and have no revenue figures to entice investors in.

Combined with stats that UK equity investment decreased by 17% in 2024 (Beauhurst), founders looking for investment may have a bit of a task ahead of them.

But what if we told you that the UK government has tax incentives that mean private investors can lower their tax bill by investing in your company?

The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative that encourages investors to financially back early-stage startups in exchange for tax relief.

If you are a startup leader looking for funding, then knowing about SEIS could be a gamechanger for your fundraising strategy.

Here, we tell you everything you need to know. But first, let’s start with the basics.

 

What is SEIS?

 

The Seed Enterprise Investment Scheme (SEIS) is a government incentive that gives investors tax breaks if they invest in early-stage startups.

Companies that are apply for SEIS, can raise up to £250,000 from investors, and in return, these investors can claim back up to 50% of their investment as income tax relief.

Individual investors are able to make a maximum investment of £100,000 per SEIS registered company.

On top of that, investors are able to access capital gains tax exemptions and even claim back some of their losses if the company fails.

So what does this mean in practice? Well, in short, your startup instantly becomes more appealing to angel investors and early stage funds – making the raise easier overall.

 

Is Your Startup SEIS Eligible?

 

If you are thinking about registering your startup for SEIS, then there are a few criteria you will need to hit.

These are:

• The company must be fewer than 3 years old
• It must be established in the UK
• It must employ fewer than 25 full-time employees
• Gross assets must be less than £350,000 before issuing shares
• Must not be listed on a stock exchange
• Must be a qualifying sector (e.g. no financial, property or leasing businesses)
• Must be controlled by individuals, not by another company
• The money must be spent on R&D to grow the business
• The company must show a genuine plan to grow

When it comes to your investors, they must be:

• UK taxpayers
• Not employees of the company
• Invest using their own funds (no loans)
• Not hold more than 30% of the company

Investors also have to retain their investment for a minimum of 3 years to get the tax benefits.

 

 

How Is SEIS Different From EIS?

 

SEIS and EIS are both UK government schemes that offer tax incentives to investors, however they are slightly different.

SEIS is for very early-stage startups (pre-seed/seed) that are less than 3 years old. They must have no more than 25 employees and can raise £250,000 to be used within 3 years.

EIS is for companies raising a series A or beyond that are less than 7 years old. The company can have no more than 250 employees and is able to raise £12 million (£5 million per year) used within 2 years.

In short: SEIS is for early stage companies that are raising a smaller pre-seed round. EIS comes next, offering larger raise limits for bigger companies.

However, it’s important to note that you can raise both SEIS and EIS funds in the same funding round, though they need to be in two distinct share raises and SEIS shares must be issued first.

 

Why Do Investors Like SEIS Companies?

 

If there’s one thing investors don’t like, it’s risk. And SEIS makes your company seem like a less risky investment for a number of reasons, including:

Income tax relief: Investors can claim 50% back on investments up to £100,000 per year. That means a £10,000 investment essentially costs them £5,000.

Capital gains tax relief: After the investment has been held for 3 years, they pay 0% capital gains taxes on profits from the sale. This is a huge drop from the current 24% that higher rate tax payers would pay.

Relief on losses: If the business goes bust, investors can offset losses against income tax – meaning they carry very little risk if it doesn’t work out.

Inheritance tax relief: There is no inheritance tax paid on SEIS shares, as long as they have been held for more than 2 years.

Carry-back options: Shares can be attributed to the previous tax year, helping to reduce the tax bill if needed.

Because of these perks, investors get genuine financial benefits from investing in SEIS companies, even if they don’t succeed.

 

How To Apply To SEIS

 

Applying to the Seed Enterprise Investment Scheme (SEIS) is relatively straightforward, as long as your startup meets the eligibility criteria.

If you want some assurance around whether your startup is likely to qualify, you can apply to ‘Advance Assurance’ from HMRC. It might sound like an unnecessary extra step, but a lot of investors will want to see this before they commit their funds.

To get this, simply apply through the HMRC website. It usually takes 3-8 weeks to be approved.

Once you have your advance assurance, you can start fundraising up to £250,000. Just make sure that all your investors are UK residents, and make sure that the shares you issue are ordinary shares.

Once you have your investors locked in, you can issue the shares. All you have to do next is submit a compliance statement (Form SEIS1) to HMRC once 4 months has passed or you’ve spent at least 70% of the money raised. This has to be done within 2 years of the end of the tax year in which the shares were issued.

When the form is approved, you need to issue a SEIS3 certificate to investors, which they will use to claim their tax relief.

Whilst it might sound a bit tricky, the process is relatively straightforward as long as you stick to timelines and make sure HMRC gets the relevant documents on time.

 

Why SEIS Can Help Close Your Round Faster

 

In a seed or pre-seed fundraise, investors might be turned off if they deem a company to be too risky.

However, SEIS helps combat that by giving investors a tax safety net that gives them protection even if the business fails.

Combined with a great pitch, a clear plan for growth and the right team – SEIS can help you raise faster, especially when you need capital fast.

 

SEIS: Your Secret Weapon In Fundraising

 

SEIS is designed to help draw investors into early-stage businesses, so for many founders, it’s a great way to broaden your appeal.

If you are thinking of raising a seed or pre-seed round and you think your startup is eligible, then start by applying for Advance Assurance – you never know, it could help tip the balance for investors!