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Is the Seed Enterprise Investment uplift staying?

Just over a month ago, then Chancellor Kwasi Kwarteng announced a series of proposals as part of the government’s Growth Plan. These included several upgrades to the Seed Enterprise Investment Scheme (SEIS), which helps companies to raise money.

However, after Kwarteng’s departure from the position a few weeks later, his replacement Chancellor Jeremy Hunt announced on 17th October that the government would actually be making a U-turn on the majority of the measures in Kwarteng’s plan.

There were few clear survivors from this mini-budget reversal, but the proposed SEIS changes seem to have made it through. Hunt’s speech stated that they will, “continue with […] the wider reforms to investment taxes”, which SEIS
adjustments would surely be a part of.

While nothing permanent has been announced or approved yet, full details of the government’s updated plans should be published soon – though the new tax and spending plan originally anticipated on Halloween has been pushed back to 17th November.

In the meantime, here’s what we know about the Seed Enterprise Investment Scheme updates, and how they could help if the government pushes them through.

What is the Seed Enterprise Investment Scheme?

First launched in 2012, the SEIS is a scheme that helps new companies to raise money so they can start to trade. Designed as a tax incentive to encourage early-stage investment in UK businesses, the SEIS offers a range of benefits for investors, such as:

  • 50% tax relief on your investment (e.g. you invest £10,000 and receive £5,000 back)
  • 0% Capital Gains Tax when shares increase in value
  • Up to 23% loss relief if the business you invest in fails
  • 100% Inheritance Tax relief when you’ve held shares for 2 years or more

There are a lot of SEIS rules to follow regarding qualifying trades, companies, and investments, as well as how the money raised should be spent, but the scheme is vital for UK start-ups.

Changing SEIS limits for investment and eligibility

The government proposed several changes to the SEIS to improve investment and fundraising opportunities. The world and many industries have undoubtedly changed a lot since the scheme first came into being ten years ago, so updates were overdue.

Currently, a company can receive a maximum of £150,000 through SEIS investments. Under the new proposals, the limit will be raised to £250,000 in April 2023 – an increase of two thirds.

Investors are also limited to investing a maximum of £100,000 a year through the SEIS, but the updates would double this amount to a personal investor limit of £200,000
a year.

To be able to qualify for the scheme, conditions for companies include applying within the first 2 years of trading and having assets of no more than £200,000. The suggested changes would allow companies to apply within their first 3 years of trading and have gross assets up to £350,000.

Other SEIS
conditions will remain unchanged, unless specified in further budget announcements.

Extending Enterprise Investment Scheme beyond 2025

The SEIS is one of four venture capital schemes currently offered by the UK government, which include the older Enterprise Investment Scheme (EIS). This particular scheme involves tax reliefs that were first introduced back in 1994 to encourage investment in small UK businesses.

However, due to a ‘sunset clause’ introduced by the EU, the EIS
was due to be withdrawn in April 2025 unless the government took action to continue it. Ex-Chancellor Kwarteng stated that the ‘sunset clause’ would be scrapped and the EIS would continue alongside the expanded SEIS.

What does this mean for start-ups and investors?

Though the changes mentioned above are all subject to change – as the past months have frequently proven – we can expect to learn more by mid-November. If the government moves forward with these SEIS updates, they could be implemented from April 2023.

It’s possible for companies to begin lining up investors now to obtain clearance from HMRC, and to accept money from investors through an advance subscription agreement.

Employees can’t invest in the company that employs them, but directors may be able to. However, directors can’t have a ‘substantial interest’ in their employer company (a shareholding above 30%). Depending on close relative shareholdings, it may be that a family-owned company will not qualify.

You can find out more about applying for the SEIS or other venture capital schemes on the government website. Should you need assistance with audits, business valuations, or raising corporate finance, please get in touch with GBAC, accountants in Barnsley, to find out how we can help.