What are EIS & SEIS Schemes?
Learning to write a good SEIS Business Plan or EIS Business Plan is essential to being accepted onto schemes that will help you raise capital for your start-up.
What Are SEIS & EIS?
The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are venture capital schemes set up by the UK Government to make investment in SMEs more attractive.
Both schemes offer tax relief to investors in early or medium stage start-ups. If you, as a start-up, apply to the schemes, they are an excellent way to attract investors and raise finance for your business. Writing a SEIS business plan or an EIS business plan is an important step in this process and this article will offer some advice.
The difference between the 2 schemes is one of scale.
The EIS is for SMEs with less than £15m in gross assets, fewer than 250 employees, and younger than 7 years since their first commercial sale. It offers Income Tax relief of 30% against the amount invested. Under this scheme, a company can raise £5m annually and £12m in its lifetime. Investors are exempt from Capital Gains Tax (CGT) on the sale of their shares after holding them for three years and, if they are sold at a loss, this can be offset against Income Tax or CGT. If shares are held for at least 2 years, they are also Inheritance Tax free.
The SEIS is aimed at early-stage start-ups so offers greater Income Tax relief of 50% for investors on investments up to £100,000 annually with a lifetime cap of £150,000. Alongside the same benefits as the EIS, the SEIS also allows investors to write-off 50% of the investment amount against CGT in the same tax year.
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Do Businesses Qualify For SEIS?
A business permanently established in the UK is eligible for the SEIS if it carries out a qualifying trade or plans to spend the investment on a qualifying trade. Most trades do qualify, including any research and development that will lead to a trade. However, a business may not qualify if more than 20% of its trade includes non-qualifying trades, like coal or steel production (see the full list here). The business must not be listed on any stock exchange at the time of investment and not be controlled by another company. It also must not control another company unless it is a qualifying subsidiary.
Because of the focus on early-stage start-ups, businesses must meet certain requirements specific to the SEIS. Businesses must have less than £200,000 in gross assets, fewer than 25 employees, must not be part of a partnership, and must have traded for less than 2 years. All these criteria must be set out clearly in your SEIS Business Plan. The same goes for the EIS requirements (mentioned above) when writing an EIS Business Plan.
How Do I Apply For SEIS Tax Relief?
To access the scheme, your business must first issue shares. It might be worth confirming with HMRC if your share-issue can qualify beforehand, this is known as advance assurance. Once your business has issued shares, you must complete a compliance statement and send it to HMRC via email or post. If the application is successful, you will be sent a letter from HMRC and compliance certificates. The letter will contain a unique investment reference number which you can pass on to your investors. Investors can apply for the tax relief with the reference number and compliance forms.
How Long Does It Take To Get SEIS?
Although there is no general rule, if you submit a good SEIS Business Plan and/or EIS Business Plan you should hear back from HMRC within 4 weeks of submission. Of course, this accounts for having received advanced assurance. If your application is not clearly put together you can expect to be contacted by HMRC for clarification. This would extend the process.
Do I Need A Business Plan For SEIS & EIS?
The Advance Assurance stage of the application process requires you to submit a SEIS Business Plan and/or EIS Business Plan. This must be submitted alongside 2-year financial projections that clearly illustrate how funds raised through SEIS/EIS are going to be spent within 2 years. All additional company documents (including drafts) should be submitted. This can include: a Certificate of Incorporation, Memorandum and Articles, Shareholder Agreements, Companies House filings, current director and shareholder details, and a copy of the company accounts. It may also be worth submitting a covering letter to aid the HMRC in going through all the information and ensuring a faster turnaround.
SEIS Business Plans And EIS Business Plans
The SEIS Business Plan and/or EIS Business Plan should serve as roadmap to your business. Not only is it essential for applying to the HMRC for the SEIS and/or EIS schemes, but a good business plan can be sent to potential and existing investors as well as managers. A SEIS or EIS Business Plan should follow a structure similar to this:
An Executive Summary: up to 1 page that summarises the business’s trade, the market opportunity, and what investment will achieve. This could be set out as a series of ‘Problems’ and ‘Solutions’.
Business Model: use this section to describe the company’s ownership type, objectives, how it is currently structured, and whether investment through the SEIS/EIS schemes will change the model in any way.
Markets: this section will describe the market conditions the company is operating in/intends to operate in. It will identify any market opportunities and quantify them as well as providing an analysis of competitors and a description of the company’s competitive advantage. You should include any pricing strategies and sales projections in this section.
Risks to Capital: acknowledging the risks and all potential scenarios is crucial for investors and the government, which you are trying to get to support any investment through the SEIS/EIS tax relief. You must set out how you would mitigate against any risks and protect your capital. You might want to present this section as a SWOT (strengths, weaknesses, opportunities, threats) analysis.
Financials: be sure to include any historic trading details and your financial projections. Projections are typically 3 years but must be 2 years for the SEIS/EIS scheme. This section should set out the funding requirements and exactly how the investment will be spent.
The Ask: this is a final summary of your plan. Even if you are trying to attract investors, it is important that you do not claim to be SEIS or EIS eligibility until the HMRC approves you. It is fine to state that you are in the process of applying/are applying to the scheme.
Since writing a watertight Business Plan is so important to accessing the SEIS and EIS schemes, you should consider services like Oxbridge Content to help you unlock such capital-raising possibilities for your start-up.