Can you backdate SEIS? Seed Enterprise Investment Scheme

The Seed Enterprise Investment Scheme is a government scheme designed to help small, newly trading companies get the funding they require to grow and succeed. Under SEIS individual investors can each invest up to £100,000 per annum into start-up and growing companies. In return for this, investors can claim income tax relief which reduces their income tax liability for that tax year. The amount of the reduction is equal to tax at the SEIS rate of 50% of the overall amount invested under SEIS. Or, if this 50% would exceed the liability for the tax year, the amount of the reduction is whatever amount will reduce that liability to nil.

SEIS cannot be backdated as such but it is possible to carry back your SEIS income tax relief to the previous tax year. This is called the ‘carry back’ facility. Using this ‘carry back’ facility, an investor can choose to have part or all of an issue of shares treated as though they were acquired in the tax year prior to that in which the shares were actually acquired. This is subject to the maximum annual investment limit for the earlier year (£100,000). The SEIS rate for the earlier year is then applied to those shares treated as acquired in the earlier year and tax relief is given accordingly.

In certain circumstances, the amount of income tax available under SEIS may be restricted. These circumstances are as follows:

  • Where the individual has received value from the company. In this case the amount on which the reduction is calculated is the amount of the subscription less the amount of the value.
  • Where the aggregate amounts on which the individual has claimed relief exceed the limit for the year. In this case the amount on which the reduction is calculated is the amount of the limit for the year.

For an investor to be eligible for Income Tax Relief under SEIS, certain requirements must be met, including the following:

  • The investor need not be a UK resident but must have a UK income tax liability against which the relief can be set.
  • The investor must not hold more than 30% of a company’s total shares.
  • The shares must be held for a period of at least three years from the date of issue for the tax relief to be retained.
  • Neither the investor nor any associates may be employees of the company they are investing in or any qualifying subsidiary unless they are also a director.
  • An investor must not have a ‘substantial interest’ in the company at any time from incorporation of the company to the termination date. ‘Substantial interest’ is defined as the investor possessing or having an entitlement to acquire more than a 30% stake in the company via ordinary or issued share capital, voting power or rights on winding up.
  • The investor must not subscribe for shares as part of a reciprocal arrangement which involves somebody else subscribing for shares in a company in which the investor has a substantial interest in return for the investor subscribing in a company in which the other person has a substantial interest.
  • There must be no loans to the investor or their associates which are linked to their subscription for shares.
  • The subscription must be made for genuine commercial reasons and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

When the company invested in has been trading for four months or spent 70% of the total investment, the company must submit form SEIS1 to the Small Companies Enterprise Centre otherwise known as the SCEC. Once SEIS1 has been reviewed and the requirements met, the SCEC will issue a copy of form SEIS3 for every investor. Each investor can then complete and submit their form as part of their Tax Return in order to receive Income Tax Relief.

For  more information on the Seed Enterprise Investment Scheme, please get in touch.