SEIS explained: the Seed Enterprise Investment Scheme explained
- Romesh Jeyaseelanayagam
- 3 days ago
- 6 min read
You've got a brilliant idea for an early-stage start-up and perhaps you even have a prototype or some early traction, but you need capital to take things to the next level. Has SEIS ever been explained to you in depth?
When running an early-stage startup in the UK, raising capital is the biggest thing keeping the CEO awake at night.
The good news is that the UK government wants to help. Enter the Seed Enterprise Investment Scheme, or SEIS for short.
As fractional CFOs, we work with ambitious founders who are navigating the fundraising maze. And in our honest opinion, SEIS is one of the most powerful tools in your arsenal.
Yet it's surprising how many entrepreneurs either don't know about SEIS or find it too fiddly to bother with. So let's demystify SEIS.
SEIS explained in more depth
Simply put, SEIS is the UK government's way of saying "we want to support startups" – and then putting their money where their mouth is.
Launched in 2012, the Seed Enterprise Investment Scheme (SEIS) is a tax relief scheme designed to encourage investment into early-stage companies.
The basic proposition is straightforward:
Investors who put money into your SEIS-qualifying company can claim back up to 50% of their investment as income tax relief.
Yes, you read that correctly. Fifty per cent.
If someone invests £10,000 in your company, they can potentially claim back £5,000 against their income tax bill.
Suddenly, risk is halved. It's a proper game-changer for encouraging people to open their wallets.
Extra advantage for investors - SEIS loss relief
So SEIS is another way to encourage investors, and you will do well to inform them that investing into your business qualifies them for the SEIS loss relief system.
If an investor loses money on their investment, they can use that loss to reduce their income tax or capital gains tax (CGT).
Investors can offset a loss against their income tax for the current or previous tax year, or against their CGT for the current or future years.
SEIS loss relief reduces the risks of investing in startups and encourages investment in new, promising ventures.
Investors considering reinvesting might find it beneficial to combine these tax advantages with other options, such as future EIS investments, to improve their overall tax situation.
As a start-up founder, you should care about SEIS
Raising money is difficult enough, and early-stage companies are inherently risky. Investors know that.
As the founder:
You might not have revenue yet,
your product might still be in development,
and your market might be unproven.
SEIS levels the playing field.
When you are able to tell potential investors that the government will effectively cover half their investment through SEIS tax relief, investment conversations change.
Angel investors become willing to take a punt.
Friends and family feel more comfortable backing you.
Even high-net-worth individuals who might have been on the fence suddenly see your pitch in a whole new light.
When the SEIS scheme is set up correctly, it is a win-win for both investors and the start-up business.
SEIS numbers explained
Let's talk specifics.
Under SEIS, investors can put up to £200,000 per tax year into SEIS-qualifying companies and claim income tax relief of 50% on that amount.
That's up to £100,000 back in their pocket.
But wait, there's more.
If they hold the shares for at least three years and eventually sell them at a profit, that gain is entirely free of Capital Gains Tax.
And if they make a loss?
They can offset that against their capital gains or even their income.
From your company's perspective, you can raise up to £250,000 under SEIS over your lifetime.
Well, it’s not millions, but for a genuine seed-stage business, it can be the difference between getting off the ground and remaining stuck at the initial phase.
Does your business qualify for SEIS?
Qualification for SEIS is where things get a bit technical, but bear with us.
Your company needs to tick several boxes:
Your business must be less than three years old (from the date of first commercial sale).
It must have fewer than 25 employees.
The gross assets must be under £350,000 before the investment and £500,000 immediately afterwards.
The business must be carrying on a qualifying trade, which is most trades but excludes financial services, property development, and legal services.
It cannot be a subsidiary of another company; you need to be genuinely raising money for growth and development – not just to buy out existing shareholders or fund a lifestyle business.
The good news is that most genuine early-stage startups naturally fit the bill.
The application process for SEIS
Here's where many founders get nervous about the scheme: paperwork is involved. There are two main areas of SEIS paperwork:
Apply to HMRC for advance assurance that your company qualifies for the Seed Enterprise Investment Scheme (SEIS).
Once you've raised the money, you need to submit compliance statements and provide certificates to your investors.
Is it a faff? A bit, yes. Is it worth it? Absolutely.
Using a fractional CFO for SEIS application
Who wants to save time? We know you do.
The SEIS application process is precisely where working with an experienced fractional CFO can save you significant time and hassle.
At The FD Consultant, we can help with SEIS applications.
We know what HMRC wants to see, how to structure your application, and how to avoid the common pitfalls that can delay or derail your submission.
Once you are registered, your young business will be much more attractive to investors.
Common mistakes to avoid in SEIS
Over the years, we've seen founders trip up in predictable ways. Here are the big ones:
Starting too late
Don't wait until you've already raised money to think about SEIS. You need advance assurance before you take investment, or at the very least a clear plan to apply.
Getting the share structure wrong
SEIS has specific requirements about share classes and rights. Issue the wrong type of shares and you're in trouble.
Missing the three-year window
Remember, you need to be within three years of your first commercial sale. If you've been trading for longer, you've missed the boat.
Thinking you can sort it yourself
Whilst it's technically possible to handle SEIS yourself, the application process is detailed and HMRC can be rather particular. One wrong answer and you're back to square one.
How The FD Consultant helps with SEIS
SEIS assistance is where the fractional CFO model really shines. You get senior-level financial expertise without the cost of a full-time CFO.
To help with your SEIS application, we:
Review your eligibility and identify any potential issues before you start.
Prepare and submit your advance assurance application to HMRC.
Structure your fundraising to be as tax-efficient as possible.
Handle all the compliance and reporting requirements; these can be quite involved.
Provide the certificates your investors need to claim their tax relief.
Integrate SEIS planning into your broader financial strategy.
SEIS compliance statement
Before investors can claim tax relief under the Seed Enterprise Investment Scheme (SEIS), your start-up must complete a SEIS Compliance Statement, also known as the SEIS1 form.
The form will ask for details about the company's trade, directors, and investors, as well as how the funds have been used.
It’s also a good idea to include a copy of your advance assurance letter, if you applied for one, as this can speed up the approval process.
Often, you’ll also need to include supporting documents, such as a business plan, financial forecasts, and a breakdown of how investment funds have been spent.
The details help to confirm that the company and its investors meet all the SEIS rules.
Investors cannot receive their SEIS tax benefits without HMRC's approval of this statement.
To submit the compliance statement, the start-up must have spent at least 70% of the SEIS funds and must have been trading for at least four months.
Once HMRC approves the compliance statement, they will send the company a SEIS2 authorisation and a batch of SEIS3 certificates for each investor.
The company then gives each investor their SEIS3 certificate so they can claim their tax relief when filing their self-assessment.
The SEIS compliance statement is a crucial step for start-ups because it turns an investment promise into real tax relief for investors, building confidence in the new business.
The bottom line for SEIS
SEIS is one of the most generous tax incentive schemes in the world.
If you're raising seed funding in the UK and you don't use it, you're making life much harder for yourself and for potential investors.
Yes, there's paperwork. Yes, there are rules. But the payoff is substantial.
The difference between a potential investor finding the opportunity interesting but risky, as opposed to actually investing, often comes down to whether SEIS is involved.
At The FD Consultant, we can make the whole process straightforward and stress-free for you.
So if you're thinking about raising money, let's have a chat. Your future investors will thank you – probably whilst they're filling out their tax returns.
Because ultimately, SEIS isn't just about tax relief. It's about giving your startup the best possible chance to succeed. Isn't that what it's all about?