SEIS or EIS - Which Funding Option Is Better for Your Business?

The UK government supports start-ups through SEIS and EIS schemes, which incentivise investors by offering them various tax reliefs for investing in your business. If both SEIS and EIS serve more or less the same purpose, how do you know which one to choose? 

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So, your start-up is finally up and running; you’ve even managed to hire a handful of talented professionals, but you need more fuel to power up the engine. That’s where SEIS comes in. But how can you make the most of it?

With little to no financial history to rely on, convincing investors that your idea is worth their support is tricky. When approaching investors, you must have a clear go-to-market strategy and a well-thought-out scalability plan supported by an expert team. Luckily, the UK government supports start-ups like yours through SEIS and EIS schemes, which incentivise investors by offering them various tax reliefs for investing in your business.  

If both SEIS and EIS serve more or less the same purpose, how do you know which one to choose? No, you can’t just randomly go with any of them. Here are some key differences to keep in mind when applying for one scheme or the other. 

The meaning behind the acronyms

SEIS = Seed Enterprise Investment Scheme  

EIS = Enterprise Investment Scheme

While the seed enterprise investment scheme is tailored to early-stage start-ups and smaller businesses, the enterprise investment scheme is suited for companies that have already reached a certain development stage and need more fuel to upscale. One rule that applies to both plans is that investors must not have any connection or affiliation to your business, and the investment must have a purely commercial intent, not tax relief.

SEIS vs EIS: Key differences

As a rule, SEIS targets companies with less than two years of trading history and 25 employees. Individual investors, not businesses, can invest up to £100,000 per tax year in a SEIS business. Generally, SEIS start-ups can accept up to £150,000 in funding in a year.

In contrast, an EIS company can absorb up to £1 million from both corporate and individual investors, and between £5 million and a maximum of £12 million in total funding in a single fiscal exercise, have a trading history of up seven years and a team of at least 250 employees.

Notably, knowledge-intensive companies (KICs) benefit from a different regime under EIS than other companies. They can receive more funding - up to £10 million per tax year and £20 million in total EIS funding, as they invest significantly in research and development. 

How can you use SEIS funds?

Now that we’ve established a clear distinction between EIS and SEIS, it’s time to move on to the next step - how you can use the SEIS funds.

With SEIS, you must spend the funds you gathered within three years of the event. These funds should be used to finance the following:

  • A qualifying trade 
  • Preparations for a qualifying trade
  • Research and development leading to a qualifying trade.

SEIS investments can only buy shares in a 90% subsidiary that uses the funds to support a qualifying business activity. 

What is a qualifying trade under SEIS?

While most business activities fit the definition of a qualifying trade under SEIS, some do not. These “excluded activities” are defined by the HMRC as follows:

  • Land dealings or investing in commodities, futures, shares, securities or other financial instruments
  • Banking, insurance, money lending, debt factoring, hire-purchase financing and other financial undertakings
  • Trading in goods, other than an ordinary dealing in goods, retail trade or distribution of the same
  • Leasing or letting assets on hire, except ship chartering
  • Royalties or licence fees (however, if these fees derive from utilising an intangible asset created by the company, earning licence fees or royalties is not considered an excluded activity).
  • Legal advice and accountancy services
  • Property development
  • Farming, market gardening, holding, managing or occupying woodlands, forestry and timber production
  • Shipbuilding
  • Coal & steel production
  • Hotel management or managing property comparable to a hotel or similar establishments
  • Operation or management of nursing homes, residential care homes and the like
  • Generation, production and exporting of electricity which will generate a Feed Tariff, unless produced by hydropower or unless performed by a community interest company, a cooperative society, a community benefit society or a Northern Irish industrial and provident society
  • Providing services to another person whose trading activities qualify as “excluded activities”, and the person controlling those trading activities is also managing the company providing said services.

*Note: This list of excluded activities has been extracted and reproduced from the HMRC website.

Ready to step into the business world? Remember, we’re here to answer any questions that you may have.