SEIS vs EIS: Comparing UK venture capital schemes

Introducing SEIS and EIS

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two UK government initiatives which aim to foster innovation and economic growth. Many early-stage businesses use one or both of these schemes to attract venture capital funding.

If you’re preparing to fundraise, investors will probably ask if your company qualifies for SEIS or EIS, and whether you’ve secured Advance Assurance. This is because investors can benefit from generous tax reliefs by financing qualifying companies through these schemes.

This comparative guide will help you understand the finer details of SEIS and EIS – including which companies are eligible, how the funding should be spent and what tax benefits are available for investors.

Seed Enterprise Investment Scheme (SEIS)

SEIS is designed for very early-stage companies that have been trading for less than three years, have fewer than 25 full-time equivalent employees and hold no more than £350,000 in gross assets when the shares are issued. 

An individual investor can invest up to £200,000 per tax year in SEIS companies and receive 50% income tax relief on their investment. Additionally, investors benefit from a capital gains tax exemption on any shares sold after three years or more.

Since SEIS offers more generous tax incentives than EIS, it's often the preferred choice for qualifying companies. In some cases, it’s possible to combine SEIS and EIS for maximum benefit.

Enterprise Investment Scheme (EIS)

Startups that have outgrown SEIS may qualify for EIS instead. This scheme is aimed at medium-sized companies that employ fewer than 250 people (full-time) and have gross assets worth £15 million or less before issuing EIS shares. The value of these assets must not exceed £16 million immediately after the shares are issued.

Individual investors can enjoy up to 30% income tax relief on a £1 million EIS investment per tax year. As with SEIS, investors pay no capital gains tax when selling EIS shares held for at least three years.

Note that there are slightly different rules and limits for knowledge-intensive companies (KICs) using EIS.

Eligibility criteria: SEIS vs. EIS 

Before applying for SEIS or EIS, you need to check:

• Whether your company is eligible

• How much funding you can raise under the scheme

• What you can and cannot spend the funding on

• Whether you meet the risk to capital condition 

The table below outlines the company eligibility criteria and investment limits for SEIS compared to EIS: 

Some trades don’t qualify for EIS – such as banking, insurance, financial services and property development. A full list of excluded activities can be found on the HMRC website.

Knowledge-intensive companies (KICs) 

You can use EIS to raise money for a knowledge-intensive company (KIC). ​​However, the increased limits for KICs do not apply to SEIS, as that scheme is designed for very early-stage companies.

Many UK tech startups qualify as a KIC without realising, so check whether the following criteria apply to your company:

• Less than 500 full-time equivalent employees

• Creating intellectual property (which is expected to account for the majority of your business within ten years)

• 20% of your employees have a Masters or higher degree, and have been carrying out research for at least three years

KICs can raise £10 million of EIS funding per tax year (with a lifetime limit of £20 million). Note that this limit includes money raised through other venture capital schemes. EIS investment must also be received within ten years of your first commercial sale or the date your annual turnover exceeds £200,000.

Raising SEIS and EIS funds 

Fundraising caps for companies

The total SEIS funding limit per company is £250,000, while EIS funding is capped at £12 million.

SEIS investment conditions 

• If you’ve already received de minimis state aid in the last three years, you might not be able to raise the full amount of SEIS funding. This is because state aid counts towards your overall investment limit

• If you’ve already raised funds through EIS, your company won’t qualify for SEIS

SEIS and EIS investment conditions

• Your company can’t raise more than £12 million in total from EIS, SEIS, Venture Capital Trusts (VCTs), Social Investment Tax Relief (SITR) or state aid

• The annual investment limit from the above sources is £5 million, which includes money received by any qualifying subsidiaries, former subsidiaries or businesses you’ve acquired

• If you’re planning to raise funds through both SEIS and EIS, your SEIS funds will count towards the EIS investment cap

Fundraising through both schemes

You can raise funding through both SEIS and EIS if you follow each process in the correct order. The important thing to remember is that SEIS comes before EIS.

SEIS is best suited to pre-seed or seed-stage companies, whereas EIS is designed for more developed businesses. As such, if you’ve used through the Enterprise Investment Scheme, you can’t go back and raise SEIS funding. 

However, you can offer EIS shares to investors after reaching the £250,000 SEIS limit – as long as you’re not raising investment through EIS and SEIS on the same day. In practice, this would mean giving SEIS share certificates to your investors first (or dating them accordingly) before issuing EIS shares.

Approved uses for SEIS and EIS funding

Investment raised through SEIS and EIS must be spent on qualifying business activities, as defined by HMRC. This typically involves any activity that aims to promote business growth and development, such as recruitment, product development or marketing. 

The funds should not be used to buy another business and must pose a risk to individual investors’ capital (in order to meet the risk to capital condition).

Remember, there’s a time limit for spending the money raised through these schemes. SEIS funds must be used within three years, while the deadline for spending EIS funds is two years from the date of investment.

Finding SEIS and EIS investors

Applying for a venture capital scheme is one thing, but finding the right investors to fund your startup is another challenge altogether. To help you get started, we’ve put together a list of active SEIS funds and EIS funds.

It’s much easier to attract potential investors if you’ve already secured Advance Assurance from HMRC. Advance Assurance indicates that an investment in your company is likely to qualify for SEIS or EIS tax relief. Learn more about the application process below.

Advance Assurance application

To apply for Advance Assurance, you’ll need to submit a form to HMRC with various supporting documents – including your business plan, financial forecasts and the latest record of your company accounts.

The deck you send to HMRC must outline the significant risk to capital of investing in your company. This differs from your investment pitch deck, which should present your business as a valuable opportunity with the potential to succeed. 

If this is the first time you’ve used a venture capital scheme to secure funding, you’ll need to provide the details of at least one prospective investor.

→ Read our Advance Assurance guide for a checklist of the required documents

SEIS and EIS for investors

We’ve covered the requirements and limits for startups raising funds through SEIS and EIS, but how does it work for investors?

Investment rules and limits

Individual investors can provide up to £200,000 in SEIS funding and no more than £1 million in EIS funding per tax year. They cannot be employed by the company or hold more than 30% of the company’s overall shares.

Company directors can invest through SEIS, but the rules are more complicated for EIS companies:

• Unpaid directors can qualify for EIS tax relief 

• Paid directors can benefit from EIS if they meet the business angel requirements

• EIS investors can only sit on the company’s board of directors after the new shares are issued

Additionally, the new shares issued under both SEIS and EIS must be full-risk ordinary shares that are not redeemable and carry no preferential rights.

Tax relief and loss relief

There are numerous incentives for investing through venture capital schemes, such as:

• SEIS tax relief and EIS tax relief, which can be claimed in the same year

• SEIS loss relief and EIS loss relief, allowing investors to recover some of the money from shares sold at a loss

• No inheritance tax on SEIS or EIS shares held for at least two years

• Reinvestment relief on assets sold to buy SEIS shares

To ensure your investors can claim their tax benefits, you need to follow these steps after closing your funding round:

1. Submit a compliance statement (SEIS1 or EIS1) to HMRC

2. Receive a letter of authorisation (SEIS2 or EIS2) containing a unique reference number

3. Send compliance certificates (SEIS3 or EIS3) containing your reference number to investors, which they can use to claim tax relief

Frequently asked questions 

1. Do you need to be a UK company to raise SEIS or EIS funds?

To determine SEIS or EIS eligibility, HMRC will assess whether your company passes the UK permanent establishment test.

2. Does EIS only last for seven years?

If your company has raised some EIS funding in the seven years since your first commercial sale, you can continue to fundraise until you reach the £12 million investment cap. The £5 million annual EIS limit still applies. 

3. Can you qualify for EIS with a new business activity? 

If you’ve exceeded the seven-year EIS time limit, starting a new business activity will effectively reset the timer. Note that this doesn’t apply to SEIS.

4. Can SEIS or EIS funds be used to repay personal loans? 

Founders can only repay money they’ve personally loaned to their business using SEIS investment, and not EIS funding. 

5. Can you repay a third-party loan with SEIS or EIS funding? 

You can use the money raised through SEIS to repay third-party loans, providing the loan was used for trade purposes and isn’t linked to the SEIS investor. This is not possible with EIS funding.