Welcome back to our two-part series on the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). In Part 1, we covered the definitions, benefits, and eligibility requirements for these schemes. Now, in Part 2, we will dive into the practical aspects of accessing SEIS and EIS, including the application process, the differences between applying for Advance Assurance before fundraising and submitting Compliance Statements after fundraising, and tips to ensure your startup is eligible for SEIS/EIS benefits. We also outline the expected timelines in the process, what to expect from HMRC, important considerations and risks, as well as practical tips from our experience with our clients.

Types of Applications: Advanced Assurance vs. Compliance Statements

Advance Assurance:

• Purpose: Advance Assurance provides prospective investors with certainty that their future investments will qualify for SEIS/EIS relief (i.e. tax benefits including income tax relief and capital gains tax exemptions, making investments in these companies more attractive and financially beneficial)

• Application Process: Online application through HMRC’s website, all about demonstrating to HMRC that your company is eligible for the schemes. Some companies apply independently, and others will hire a specialist advisor like Accelerate Law to support with the application.

• Benefits: Whilst not mandatory, obtaining Advance Assurance before fundraising can significantly boost investor confidence and is highly recommended. This pre-approval shows potential investors that you have taken steps to ensure their investment will be eligible for tax relief, reducing their risk and making your company a more attractive investment opportunity. In our experience, the application process is relatively straightforward and based on a simple cost-benefit analysis, it is worth applying to ensure there is no risk of investors walking away simply because a company doesn’t have Advance Assurance.

Compliance Statements:

• Purpose: After an investment round, you must submit a Compliance Statement (SEIS1/EIS1) to HMRC to confirm that the investment meets SEIS/EIS criteria. This application relates to the specific investments made and shares issued, where Advance Assurance is a generic application regarding the company’s eligibility for the schemes generally.

• Application Process: This involves an online submission post-investment, outlining the issued shares and qualifying details. You (or we on your behalf) need to provide specific information about the investor(s), the amount of money raised, and how the funds will be used in accordance with SEIS/EIS rules.

• Outcome: HMRC will issue certificates for each investor, which they can use to claim their tax reliefs. Whereas Advance Assurance is not compulsory, this step is required for your investors to receive the tax benefits they were promised. Investors cannot receive SEIS or EIS tax relief without a successfully completed Compliance Statement..

The Application Process

You can either handle the application process independently or with the assistance of an advisor with experience of these applications, like Accelerate Law, to support you end-to-end. Here’s a detailed overview of both methods:

Independent Application:

1. Advance Assurance:

• Create an Account: Register on the HMRC website and create an account for your company.

• Prepare Documents: Gather all necessary documents, including investor-facing documents such as aa business plan, financial forecasts, and/or pitch deck. These documents should clearly demonstrate your company’s growth potential and how the investment will be used.

• Complete the Form: Fill in the SEIS/EIS Advanced Assurance application online. Be precise and thorough, providing all requested information to avoid delays and questions from HMRC.

• Submit Application: Submit the application along with the supporting documents. HMRC may ask for additional information, so be prepared to respond promptly.

2. Compliance Statement

• Issue Shares: Ensure that shares are issued to investors as per the agreed terms.

• Complete the Form: After the shares are issued, fill out the SEIS1/EIS1 form, available on the HMRC website. Include detailed information about each investor and the share issuance.

• Submit Application: Submit the Compliance Statement online. Keep records of all transactions and communications in case HMRC requests further details.

3. Getting Support from an Advisor

It can be helpful to work with an advisor like Accelerate Law who can manage the entire process for you. This can be both a time saver and ensure all information is complete and accurate. This reduces the risk of errors and increases the likelihood of approval. Small errors in the application can result in companies which should be clearly eligible getting stuck in Q&A with HMRC and long processing queues, which can have a disproportionate knock-on effect on fundraising.

We usually advise that it is worth speaking to an advisor before going ahead with an SEIS/EIS application, bearing in mind that these applications should be just a small part of an overall fundraise, for which founders will almost certainly need legal support anyway.

Ensure you have all the information/documents needed and provide your advisor with all necessary information depending on which application type you are going for. Advisors can support throughout the entire process or part of the process, as well as handling any follow-up queries from HMRC.

4. Timeframes and HMRC Responses

• Advanced Assurance: Responses typically range from a few days to 2-3 weeks. HMRC will send an email confirming your assurance status. During peak times, such as near tax year-end, responses might take longer, so apply well in advance.

• Compliance Statements: After submission, HMRC’s response time can vary, but you can expect to receive investor certificates within a few weeks. These certificates are required for investors to claim their tax reliefs, so timely submission is important. Otherwise, investors are likely to chase!

Commitments to Investors and Potential Risks

Investors benefit significantly from SEIS and EIS, but there are commitments and risks to be aware of:

• Eligibility Maintenance: Your company must continue to meet SEIS/EIS eligibility criteria for a minimum period (usually three years from the date of share issuance). If your company’s activities change or it is sold before the investors have held their shares for the required period, the tax relief may be withdrawn.

• Clear Communication: Clearly communicate with investors about the eligibility and any changes that might affect their tax reliefs. Avoid including clauses in investment documents stating that SEIS/EIS relief is guaranteed indefinitely. It is better to be transparent to help manage investor expectations and maintain trust.

Our Take: Practical Tips forto Ensure SEIS/EIS Eligibility

From our experience working with 500+ clients since 2018, we have included a round up of tips that may be helpful during your application process:

1. Eligibility Criteria: Cross-check your company with the eligibility criteria on the HMRC website as a starting point.

2. Appoint advisors: Even if doing your S/EIS applications independently, which some companies do, it still makes sense to appoint your legal advisors for your fundraise when at the S/EIS application stage. Remember that S/EIS is one part of a much larger whole.

3. Level of Documentation Required: There is a difference between HMRC reviewing your business plan and pitch deck Vs HMRC reviewing it. HMRC are not investing and are not judging your credibility or chances of success. They are judging your eligibility to participate only, and therefore you can submit investment documents to HMRC which demonstrate what your company is all about, even if you still want to refine those documents further for investors.

4. Spending Plan: Your application needs to detail somewhere how the funds will be used, even if at a high level.

5. SEIS or EIS - Combined Advance Assurance Application: If raising under £250,000 you will make SEIS applications and if raising over £250,000 then you will make a combined SEIS and EIS application. If you are on the edge of £250,000, it makes sense to target just above £250,000 to ensure you can file a combined application, rather than having to repeat the process later.

6. Where to Focus: In practice, when we apply for SEIS/EIS Advance Assurance for clients, it should be a formality provided everything is done correctly, and we recommend that founders keep their focus firmly on actually fundraising, rather than this process which is easily delegated.

SEIS and EIS offer great benefits to both startups and investors, but accessing these benefits requires careful management and adherence to HMRC guidelines. If you get it right, it’s easy - if you don’t, it can be frustrating and slow. By understanding the application process, maintaining eligibility, and communicating effectively with investors, you can maximise the advantages of SEIS/EIS for your startup.

Next Steps to Get Started

1. Review Eligibility: Ensure your company meets all SEIS/EIS eligibility criteria (we cover this in part 1)

2. Prepare Documents: Gather and prepare all necessary documentation for the application (as well as basic company details, a solid business plan and financial projections, you will also need your company’s Unique Taxpayer Reference (UTR) number, which you will have received when incorporating. You can also request it again here).

3. Appoint Advisors: Appoint your fundraising legal advisors, such as Accelerate Law or another company, who will support on the overall fundraise with you, which optionally includes supporting with SEIS and EIS applications.

4. Investor Confirmation: Confirm you have at least one investor on board. You can usually get verbal consent from your potential investors (and this information can be changed so they are not “locked in”).

5. Apply for Advanced Assurance: Consider applying for Advanced Assurance to boost investor confidence.

6. Submit Compliance Statements: After your investment round, promptly submit Compliance Statements to secure investor tax reliefs.

Accelerate Law provides flexible strategic and legal support to startups end-to-end through angel investment rounds and VC funding rounds, which includes supporting with SEIS and EIS matters, flexible funding for example through Advanced Subscription Agreements, and drafting and negotiating investment terms from term sheets through to completion. Accelerate Law also specialise in EMI Schemes for startups. Contact us here to find out more.