We are beginning to receive the SEIS and EIS tax certificates from HMRC for the first companies to fund through Seedrs, and I wanted to take this opportunity to explain to you how the process works for you to claim relief. A detailed explanation is below, but the most important bit is that if you have made an SEIS- or EIS-eligible investment through Seedrs, please ensure that the postal address in your Seedrs profile is kept up-to-date, as we will be posting the relevant documentation to you when it becomes available.
Seed Enterprise Investment Scheme
As you know, Seedrs uses a nominee structure which means that we hold the shares as nominee on your behalf in any companies that you have invested. There are numerous advantages to this structure for both the entrepreneur and the investor, and ensuring that investors receive the appropriate EIS or SEIS tax relief in an efficient manner is a prime example of how this works in practice.
EIS and SEIS Process
- Any listing that is labelled as EIS or SEIS has been assessed by Seedrs as being very likely to be eligible for such relief. However, one can never be 100% sure with HMRC, which is why they operate an advanced assurance process. This enables a company to apply to HMRC, explaining the details of the relevant investment round and asking them to confirm that if the investment round is completed accordingly, then they would grant the investors the appropriate relief (provided such investor is eligible themselves).
- Seedrs will never close a fundraising round and transfer the funds to the relevant startup company unless and until HMRC grants advanced assurance. We assist the company in making this application.
- There are a number of requirements that must be complied with by the company throughout the first few years of the investment and failure to comply could mean that an investor could lose the relevant tax relief and any previously claimed reliefs could be clawed back. Seedrs executes a shareholders agreement with the startup company on behalf of the investors, and one of the many contractual protections in place is a requirement that the startup company refrains from doing anything which could result in an investor losing their tax reliefs. As nominee, we will be monitoring the company to ensure that this is followed in all but the most unusual circumstances, and that as far as is practically possible you will not lose your tax relief.
- HMRC requires a few things to happen before they will allow investors to claim relief. In the case of SEIS, the company must either spend 70% of the funds raised or have been trading for four months before relief can be claimed; for EIS, the company must have been trading for four months regardless of how much money has been spent. This is why many of you have not received any tax documentation from us yet.
- As soon as a company becomes eligible to do so, we work with them to file the relevant document with HMRC. They need to file what is known as a Form EIS1 (for EIS eligible investments) or a Form SEIS1 (for SEIS eligible investment). This is the company’s official application for relief.
- Provided that HMRC approves the application for relief (which they are almost certain to do, given that they have granted advanced assurance), they will issue certificates, known as Form EIS3 and Form SEIS3, to the company. The company then fills in information on the certificates for each investor and provides the completed certificates to us, and we send them on to you. You will need to fill out the remainder of the certificate and submit it with your personal tax return. Please note that you will receive a separate certificate for each investment, and that unless you notify us that you expressly do not want to claim EIS or SEIS relief on a given investment, we will send you a certificate for that investment (you, of course, do not need to file it if you do not want to do so).
Finally, all of this tax documentation has to be done by original signatures, and we are therefore required to send you the documents by post. As discussed above, please ensure your postal address on your Seedrs account is correct and up to date. We are working with HMRC to try to push forward digitisation of this process, and we will let you know as soon as a digital solution becomes available.