Thinking of investing in an ex-colleague’s business and they’ve told me they’re covered by this scheme. From a quick read of the terms, it seems you can:
– Get income tax relief of 50% on your investment.
– Claim 70% of your investment back after 4 months, or if they’ve spent 70% of the investment they’ve raised, or if the company folds within 3 years.

After 3 years, you’re no longer eligible for tax relief.

Looking at the shareholder’s agreement, I see no reference to the SEIS scheme. Is this standard practice? I’m assuming that it is, because the shareholder agreement needs to be one that is set in stone, and not vary according to government policy?

The company usually gets confirmation of its eligibility for EIS from HMRC in advance, obviously they will provide a description of the business in the application which if it isn’t followed in practice may cause the relief to be taken away.

Thanks! Guessing not seeing a reference in the shareholders agreement is not a problem then?

What does your Accountant say?

I’ve been through this but from the “other side” i.e. it was my business that was SEIS (and therefore EIS) qualified. You friend should be able to provide an advanced assurance that his business meets the criteria.

I think the business is allowed £150k of investment via this route and then another £1M in follow on EIS. An invidual is allowed to invest £100k – not sure if that is yearly or every X many years.

HMRC were helpful on the telephone but adminstratively slow and prone to “losing” stuff.

Its only eligible for full ordinary shares so no special treatment allowed.

If you can get the tax relief you should and your friend should organize/setup the business to take advantage.

Thought about it, but if a PM can’t do it, it’s not for me 😀

Its not like the halcyon days of the B.E.S. which you could use for BTL

Commercially the tax relief is one of the attractions of the investment. It is pretty unreasonable to expect them to guarantee the relief as that is outside their power. However, it isn’t unreasonable to expect them to carry out the business in a way that is either consistent with the rules of the scheme or the application for clearance, the better option. A typical mechanism for doing this would be for them to make representations in the shareholders agreement of how they are going to carry on the business – this is desirable anyway as you don’t want them doing whatever they like. The question then, which is a one for a contract lawyer, is whether a claim can be made for a loss of tax relief consequent to a breach of representation generally or whether this needs to be explicitly stated.

@suburbanreuben
Don’t have one!

Like cb says, they’re only looking for £150k and I’m one of the smaller investors. Looks like I can claim half of my investment as tax relief, which is pretty decent. I reckon I’ll just have to file it with HMRC. Do you know what shape the advance assurance takes? So far I’ve just got an early e-mail to the investors saying they’re using the scheme.

Just seen your crossed post, if its small then I would just seek ask them what their plans are to qualify and what comfort they are giving investors.

Curious – its an HMRC letter stating that they confirm that the business qualifies – subject to no porkies being told. A couple of lines – no more detail than that. You might want (as mentioned above) some commitment from the company to say that they won’t deliberately balls that up by operating outside of the parameters – my investors didn’t ask anything more than sight of the letter.

I’ve had a few clients who have invested in various companies. Main points already covered above. Tax relief is the main benefit if you are higher rate tax payer otherwise like any other investment if you can’t afford to lose it then don’t do it. Not many of my clients actually got their investment back.
Also consider that if this is friend and you lose you money how would it affect that friendship.

@craigxxl
Valid points. While it would not be nice to lose the money, I can afford to live without it. They’re not friends either, so no worries about wrecking relationships!I’m just trying to find out what protection I have, and what I need to worry about.

@mefty sounds like you’ve done a good job of clearing this up, so thanks!

You have no protection hence the tax incentives to invest in small companies that would otherwise struggle to find investment. Think of it as kick starter project with tax benefits

How easy is it to claim the tax back? Do you just have to fill in the return at the end of the year?

In small companies it often becomes confusing where the boundaries are between the shareholders, the directors, the company itself etc. If they are new to the start up world they may be particularly niave to the requirements and expectations of investors – I wouldn’t make anything other than a trivial investment into a company without legal advice.

Is there a separate investment agreement from the shareholders agreement? I just had a quick skim back in time and it looks like this has usually been in the Investment Agreement rather than the Shareholders’ Agreement.

CONDITIONS PRECEDENT: (in addition to many other things)
Receipt by the Investors of evidence satisfactory to them that provisional clearance for the trade of the Business has been granted for the purpose of EIS relief, and such relief being available in respect of the Investment.

MATTERS REQUIRING INVESTOR APPROVAL: (a very long list, including)
* the Company ceasing to carry on a “qualifying trade” for the purposes of EIS; or
* the engagement in any form of activity which may prejudice the Investors’ relief under EIS in connection with the shareholding of the Investors in the Company.

* The Company undertakes to the Investors to use all reasonable endeavours to procure that EIS Certificates are obtained on behalf of and issued to the Investors within 6 months of the date of this Agreement and shall conduct its affairs in a manner which will not prejudice EIS status.
* The Company undertakes to the Investors at all times to only carry on “eligible business” or a “qualifying trade” for the purposes of EIS for a minimum of three years from the last date of subscription by the Investors pursuant to this Agreement.
* The Company undertakes to the Investors as soon as possible following Completion, make all necessary applications to HMRC for the grant of EIS relief to the Investors and thereafter confirm the same to the Investors.

How easy is it to claim the tax back? Do you just have to fill in the return at the end of the year?

If David Cameron invested in this, would the media (and other STW threads) be saying he was avoiding tax?

just asking 😉

br – in all seriousness, this scheme is a very positive way of wealthy people reducing their tax burden. There is still an element of risk – albeit not for the full investment but the scheme allows (or provides a greater chance) for start ups to get to where they need to be to succeed. It creates jobs.

We’re still in business because of it. The alternative is that wealthy people sit on their cash or hide it.

br – in all seriousness,

I was been totally serious.

I’m a big believer in been legal with my tax affairs, my companies tax affairs and any company I work with (I’m an Interim Manager at an SME and do look at schemes like these to help with funding/investment). I also believe that it’s the Govt’s responsibility to put the correct tax legislation in place. Failure to do this and create loopholes and/or errors is totally their (Politicians and Civil Servants) fault, and the taxpayer is perfectly entitled to take advantage of these.

And as long as HMRC is satisfied its no damn business of anyone else.

It’s just that DC is been castigated for investing in legal schemes, and tbh the media isn’t helping. I don’t expect Joe Public to understand, quite frankly most of them struggle with how their own income tax and NI work. Although I don’t think anyone outside of a Professional (HMRC, payroll, Accountant etc) actually understands how NI works 🙂