Tax relief for 78% of investors

AC writes: My company is raising money under the Enterprise Investment Scheme. Given the announcement of the Seed Enterprise Investment Scheme, can we use that instead to give our investors enhanced relief? We are raising more than the £150,000 limit, so can we split the fundraising between the two schemes?

The Seed Enterprise Investment Scheme (SEIS) legislation is in draft form at present and will apply only to share issues made on or after April 6, 2012, writes Jon Sutcliffe, partner at Kingston Smith LLP. If the legislation stays in its current form, an investor could avoid paying tax at 28% on an existing capital gain, plus get income-tax relief worth a further 50% of the investment, meaning that the net cost to the investor is a mere 22% of the amount invested.

Understandably, given this very attractive tax relief, there are some tight limits on SEIS. The company must be less than two years old when the investment is made; have a qualifying trade; have fewer than 25 employees; and have gross assets of less than £200,000. As with the Enterprise Investment Scheme (EIS), there are restrictions on an investor having any previous connection with the company, and the investor may not own more than 30% of the company to qualify.

The maximum a company can raise cumulatively under SEIS is £150,000. It follows that if you are raising more than £150,000, you will need to consider the timing and interaction of SEIS with EIS to get the best deal for your investors. It will be a new requirement for getting EIS relief that at least 75% of any money raised under SEIS has been spent before EIS can be given.

Ideally, if you can wait until April, you will want to raise £150,000 under SEIS, spend it on the business, and then follow that up with EIS funding.