SEIS and EIS - what you need to know about the 2023/2024 changes?

What do you need to know about the changes to SEIS?

The government’s strategy for this scheme seems two-fold, attempting to increase the number of companies that can use the scheme while increasing the value available to the ones that do. This strategy is executed through the below changes to the scheme’s conditions: 

• Companies can now benefit from the scheme for its first three years of trading rather than its current limit of two years
• Companies can now qualify with up to £350,000 of gross assets, an increase from the current limit of £200,000
• Companies that qualify for SEIS can now raise up to £250,000, an increase from the current £150,000 limit
• Individual investors can now invest £200,000 rather than £100,000 to support the new company 

It should be noted that these conditions don’t kick in until the new financial year and that a company that has raised funds under EIS is prevented from raising further funds under SEIS even if they were to qualify in the new year.

How has COVID-19 affected the schemes? 

Outside of the above legislative changes to SEIS, HMRC continues to review the guidance relating to the permanent establishment and financial health requirements in both schemes. In the wake of COVID-19 and its after-effects, the below updates to these requirements have provided firms with more up-to-date guidance.

Permanent Establishment Requirement

A common long-lasting effect of COVID-19 on businesses is the switch to hybrid working and even working abroad. As times change and offices become less prevalent, HMRC continues to clarify its position on flexible working and its impact on a company’s ability to satisfy the permanent establishment requirement. The clarification of businesses having the ability to hire people worldwide and still benefiting from the schemes if you have a presence in the UK, is a real positive.

The Financial Health Requirement 

It is also expected that additional information will be released regarding the requirement for firms needing to be in good “financial health” when applying for the schemes. In light of the difficulties companies are experiencing post-COVID-19, HMRC is expected to re-visit the context of this requirement. We'll update this article when more information is released.

A few cases have gone to tribunal; what does this mean? 

The risk to capital condition, seen in both schemes, requires any fundraising company to provide evidence that the main objective of the raise is to ensure the long-term growth of a sustainable business (not a short-term project) and that sufficient risk is involved in investment. 

Following several cases reaching tribunal regarding this condition, the below two particularly subjective areas have seen informative judgements: 

Long-term growth requirement 

Some companies have struggled to demonstrate their intended long-term viability beyond an initial short-term product or idea, especially if their marketing and fundraising documents focus on short-term success, causing them to fail the requirement. However, in a recent case, the tribunal held that starting with an initial product did not mean a company would necessarily fail the long-term growth requirement and it was perfectly reasonable for marketing to focus on the initial idea or product. 

Investment spend

Companies must demonstrate that they will use any money raised for the business's long-term growth. A company recently lost at a tribunal as HMRC successfully argued they had not spent the money on the company’s infrastructure to facilitate growth and allow it to become a viable long-term business, causing them to fail the condition. Part of HMRC’s reasoning relied on the lack of a business plan and projections meaning they could not evidence their long-term intentions to trade beyond three years.

What should you do now? 

Following the recent updates to the schemes and the number of cases that have gone to a tribunal, it’s become more apparent that HMRC applies the conditions and requirements of the schemes strictly. Therefore, advance assurance should be sought from HMRC to avoid your SEIS and EIS proposal being rejected. 

Furthermore, the cases we have seen demonstrate the importance of understanding the rules and particularly the documents you produce for potential investors and HMRC. To ensure that you’ve planned appropriately and to take maximum advantage of the relief available, it’s recommended that you reach out for professional advice. 

Whether you're considering fundraising, amid fundraising, or even investing, get in touch with Adam Chick, or fill out the form below and we'll be in touch to discuss your requirements and how we can help.