SEIS vs EIS: A Founder’s Guide to UK Investment Schemes

1 Dec

For early-stage founders in the UK, raising capital is one of the most significant challenges you will face. While finding the right investors is hard work, the government provides two powerful incentives to help sweeten the deal: the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).

Both schemes are designed to reduce the risk for investors by offering generous tax reliefs. However, choosing the wrong one, or applying for them in the wrong order, can lead to rejected applications and compliance headaches.

This guide breaks down the differences between SEIS and EIS, helping you understand which scheme aligns with your current stage of growth.

What are SEIS and EIS?

Before diving into the technical criteria, it is important to understand the intent behind these schemes.

SEIS (Seed Enterprise Investment Scheme) is designed for very early-stage startups. Because these businesses are young and carry a higher risk of failure, the government offers investors significantly higher tax relief (50%) to encourage them to back you.

EIS (Enterprise Investment Scheme) is intended for companies that are slightly more established and looking to scale. The risk is arguably lower than a brand-new seed company, so the tax relief is set at a still-generous 30%.

SEIS vs EIS: The Key Differences

To help you decide which scheme fits your business, we have simplified the criteria into the table below.

  
      Criteria
      SEIS (Seed Stage)
      EIS (Growth Stage)
    
      Max Funding
      £250,000 (Lifetime)
      £12m (Lifetime)
    
      Annual Limit
      £250,000
      £5m
    
      Investor Relief
      50% Income Tax
      30% Income Tax
    
      Company Age
      Under 3 years
      Generally under 7 years
    
      Employee Limit
      Fewer than 25
      Fewer than 250
    
      Gross Assets
      Under £350,000
      Under £15m
    
      Spend Deadline
      Within 3 years
      Within 2 years

The Seed Enterprise Investment Scheme (SEIS)

SEIS is usually the first port of call for startups raising their pre-seed or seed rounds. It allows you to raise up to £250,000 in total.

To qualify for SEIS, your company must:

Be based in the UK (have a permanent establishment).
Perform a new qualifying trade (most trades qualify, but banking, insurance, and property development are excluded).
Have been trading for less than 3 years.
Have gross assets of less than £350,000 before the share issue.
Have fewer than 25 full-time employees.

The Investor Benefit Investors love SEIS because it mitigates their downside. They receive 50% income tax relief on their investment. If the business fails, loss relief further cushions the blow. If the business succeeds, any growth on the shares is free from Capital Gains Tax (CGT) after a three-year holding period.

Spending the Funds You must spend SEIS funds within three years of the share issue. The money must be used for a qualifying business activity, preparing to trade, or Research and Development (R&D).

The Enterprise Investment Scheme (EIS)

EIS is designed for medium-sized startups that have graduated beyond the seed phase and require significant capital to scale operations.

To qualify for EIS, your company must:

Be based in the UK.
Perform a qualifying trade.
Usually be within 7 years of your first commercial sale.
Have gross assets of less than £15 million before the share issue.
Have fewer than 250 full-time employees.

The Investor Benefit While the income tax relief is lower than SEIS at 30%, it allows investors to deploy much larger amounts of capital (up to £1 million per tax year, or £2 million for knowledge-intensive companies). Like SEIS, gains are free from CGT if held for three years.

Spending the Funds EIS rules are slightly stricter on timelines; the funds must be employed within two years of the investment or the commencement of trading.

Can You Use Both Schemes?

Yes, and many companies do. However, the sequence is critical.

You must use SEIS before EIS.

You cannot issue SEIS shares if you have already issued EIS shares. The logical path for most startups is to raise their initial £250,000 allowance under SEIS to get the business off the ground, and then move on to EIS for Series A rounds and beyond.

If you are unsure if you have "aged out" of SEIS, it is vital to check your trading start date and asset levels before offering terms to investors.

Which scheme is right for you?

If you are struggling to pinpoint where you sit, use this simple checklist to guide your decision.

Choose SEIS if:

You are pre-revenue or simply have an early prototype.
You are raising your first round of friends and family or angel investment.
You need less than £250,000 to reach your next milestone.
You have very few employees and few assets.

Choose EIS if:

You have proven traction and a growing customer base.
You need to raise substantial capital (over £250,000) to expand.
You are planning to expand into new international markets.
You have already used your full SEIS allowance.

The Importance of Advance Assurance

Regardless of which scheme you choose, we strongly recommend applying for Advance Assurance from HMRC.

Advance Assurance is a provisional confirmation from HMRC that your investment is likely to qualify for tax relief. While not legally mandatory, most experienced investors will not transfer funds without it. It acts as a safety net, assuring them that their tax breaks are secure.

To apply, you will need:

Details of the potential investors.
Your business plan and financial forecasts.
A breakdown of how the funds will be used.
Your latest accounts.

How Zyla Accountants Can Help

Navigating HMRC compliance while trying to grow a business is a difficult balancing act. One wrong form or a missed deadline can jeopardise your investors' tax relief and damage your relationship with them.

At Zyla Accountants, we specialise in helping high-growth startups secure SEIS and EIS Advance Assurance. We review your eligibility, prepare your forecasts to meet HMRC standards, and handle the application process so you can focus on pitching to investors.

Ready to start your fundraise? Contact the Zyla team today to ensure your round is compliant from day one.

Ian Hughes