Seed enterprise investment scheme ― scheme criteria

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Seed enterprise investment scheme ― scheme criteria
  • Scheme criteria
  • SEIS criteria relating to the investor
  • SEIS criteria relating to shares
  • SEIS criteria relating to the issuing company
  • At the time of issue
  • During period B
  • During period A
  • Qualifying activities
  • New qualifying trade
  • More...

The seed enterprise investment scheme (SEIS), like the enterprise investment scheme (EIS), is designed to encourage individuals to invest money in shares issued by qualifying unquoted companies though it is specifically aimed at very small companies which have only recently begun to carry on a qualifying trade.

The scheme became effective from 6 April 2012 and HMRC has since published some basic guidance. See the Seed enterprise investment scheme (SEIS) ― introduction guidance note.

Scheme criteria

To be eligible for relief, the scheme imposes conditions for the investor and the company, and has a number of general requirements.

These apply to two particular periods in relation to the incorporation of the company and the issue of shares. These are referred to in the legislation as periods A and B.

Period A runs from the date of incorporation to three years after the issue of SEIS shares.

Period B runs from the date of issue of SEIS shares to three years after.

See the Summary ― Seed enterprise investment scheme ― overview of conditions for a table summarising the conditions in relation to these period.

SEIS criteria relating to the investor

To be a qualifying investor the following need to be met:

  1. during period B, the investor(nor an associate) is not an employee of the company, though directors are not employees for this purpose

  2. during period A, the investor does not have a substantial interest in the company

  3. during period A, the investor (nor an associate) does not receive a loan as a result of the investment

For these purposes, a substantial interest is an effective 30% holding of the ordinary share capital, issued share capital, voting power of the company or a 51% subsidiary. Effective holdings include those which the investor enjoys as a result of holdings through companies. These three conditions form parallel to the ‘no connection’ condition for EIS contained in ITA 2007, s 163.

In addition to this, there are two further general conditions for the investor that:

  1. theinvestor does

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