Ensuring investors are protected and receive EIS or SEIS tax relief

Ensuring investors are protected and receive EIS or SEIS tax relief

27th October 2012 by Thomas Davies

Once you have invested in an EIS/SEIS eligible company on Seedrs, you may now be wondering how on earth you can take advantage of these incredible tax breaks. We’ve had a number of people ask how they claim the relevant tax relief, and how we ensure that an investment made into a company which is labelled as EIS/SEIS eligible will be eligible for relief when the investment closes.

We have written this post to help explain the EIS/SEIS process and our stringent procedures that we have in place to ensure that any investment made through Seedrs will be eligible for relief, if a listing is labelled as EIS/SEIS eligible.

Whether an investor will be able to claim EIS/SEIS relief on their investment depends on a number of factors, including 1. whether the company is eligible, 2. whether the particular investment is eligible, and 3. whether the investor themselves are eligible. Point 3 is purely down to the individual circumstances of the investor and therefore we only focus on points 1 and 2.

When an entrepreneur submits a listing to Seedrs, they are required to answer an EIS/SEIS questionnaire which we have designed. Based on the responses that the entrepreneur provides, an automated decision will be generated as to whether or not they are eligible for EIS or SEIS relief. In addition, once the entrepreneur has submitted their listing, we perform a manual analysis to decide whether we agree with the outcome of the questionnaire. Only when we are satisfied that the business, and the particular investment that they are looking to raise on Seedrs, is likely to be eligible for EIS/SEIS relief do we label it as such on the listing. It is important to note that you can never be a 100% sure until the HMRC actually issues the relevant tax certificate, as explained below.

If a listing reaches 100% investment on our site, the company does not automatically receive the money. At that stage we undertake detailed legal due diligence on the company and the directors to ensure that everything is in order. As part of this due diligence, we work with them to apply to HMRC for EIS/SEIS advanced assurance. This application outlines to HMRC details of the proposed Seedrs investment, the company’s structure and their activities in advance of an issue of shares, so that the HMRC can advise on whether or not the proposed investment on Seedrs is likely to qualify for relief. Advanced assurance was created by the HMRC for exactly this purpose, so that an investor can get comfort that they will receive the relief before they actually make the investment.

If the advanced assurance certificate is NOT granted by the HMRC, then this is deemed a material deviation from the terms of the investment, and the investment would be cancelled by us and the investors would have their investment credited back to their Seedrs account. We absolutely would not close an investment if a listing was labelled as EIS/SEIS eligible, but the HMRC did not provide the relevant advanced assurance certificate.

If the advanced assurance certificate IS granted, and we were happy with the outcome of all of the other legal due diligence that we have undertaken, then we would close the investment and transfer the funds to the company in exchange for the relevant shares. We would then work with them to submit the relevant EIS1/SEIS1 certificate to the HMRC. If the HMRC accepts that the company, its activities and the shares meet the requirements of the relevant EIS/SEIS scheme, it will issue the company with a certificate to that effect, and will supply claim forms (EIS3/SEIS3) which investors can then use to claim the relevant tax relief when submitting their personal tax forms. Seedrs would pass these claim forms on to the investors.

Please note that the company may not submit the EIS1/SEIS1 certificate until certain conditions have been met (for example under SEIS 70% of the funds must have been spent), but pursuant to the subscription agreement entered into between Seedrs and the company at the time of closing the investment, the company is under a contractual obligation to ensure that it completes all of the relevant paperwork to ensure that the EIS/SEIS certificates are completed and sent to HMRC. This is just one of many examples of why it is absolutely key to have an FSA regulated institution, such as Seedrs, managing the investment and being the contractual intermediary between the investors and the entrepreneur. It is important to remember however that a company has to continue to satisfy certain EIS/SEIS eligibility requirements going forward (for example, it can not change its business activities to undertake one of the EIS/SEIS excluded activities) otherwise the investor would lose their relief, and while the chances of this happening are quite remote, it is an unavoidable part of the EIS/SEIS system.

These procedures are designed to ensure that when an investor makes a decision to invest in an EIS/SEIS eligible listing, they can be rest assured that we at Seedrs have done everything in our power to ensure that the investor, provided that they are themselves eligible for the relief, will obtain the appropriate tax relief on their investment.

Happy investing!

Thomas Davies

Thomas Davies

I'm the Chief Investment Officer for Seedrs.

Digital Agency Kent