Government tighten regulations around EIS and SEIS5 Jan 2019
For any business trying to raise funding, you should certainly be looking into the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).
We’ve laid out everything you need to know about SEIS in previous blog posts, as well as doing the same with EIS.
However, just recently there has been a significant change to the rules around applying for ‘advance assurance’.
The changes have been made after the Chancellor’s ‘Patient Capital Review’ which has tightened up the regulations around which companies and investors can benefit from the generous tax reliefs available.
As a small business accountants we specialise in working with clients to grow their business, and part of that includes helping them to secure the funding they need to prosper.
Investment negotiations should already be underway
Mostly it is good news, with loopholes being removed that had created demand for ‘asset backed’ investments that were not the type of high risk/high growth entrepreneurial companies that the scheme were intended to support.
HM Treasury has extended the reliefs available in ‘knowledge intensive’ companies – those that are truly innovative and are using research & development (R&D), in its broadest sense, to create new intellectual property.
They have also taken the opportunity to improve the mechanics of advance assurance. Previously companies thinking about raising investment could apply speculatively to HMRC for advance assurance – a letter to say that in HMRC’s view the investment was eligible for SEIS and/or EIS relief.
This was putting a huge strain on resources in HMRC’s Small Company Enterprise Centre (SCEC), with delays of up to 10 weeks becoming common.
Now HMRC will only provide advance assurance where the company making the application names the individual(s), fund manager(s) or other funder(s) who are expected to make the investment.
HMRC does not expect investment offers to have been formalised (most are likely to be contingent on the advance assurance being obtained) but it does expect the company to be in negotiations with the potential investors and to be able to show details of the likely investment upon receipt of the advance assurance.
Changes have reduced lead times for applications
The good news is that already this change (and more bodies being deployed to SCEC) have reduced the lead time on applications to just a couple of weeks in most cases. So this shouldn’t cause a delay to investments being made.
The consequences will vary dependent on what kind of investor a company is talking to:
For individual investors, the company will need to get far down the negotiations to identify the actual named investors and amounts expected
For funds, the same applies, but this will be a little easier to coordinate when there is just one or two funds involved and no doubt a fund will help with a letter that can be sent to HMRC detailing their position
For crowdfunding sites, HRMC specifically states “evidence, for example letters or emails, to demonstrate that the company has engaged with and begun the screening process with the platform. It is not enough for the company to show it has approached a platform; there must be confirmation that the platform accepts the company may be a viable investment for its customers and that further engagement is underway”
HMRC have also said they are going to improve their guidance and publish a checklist of supporting documents that are needed. Furthermore, the future may possibly see the whole process becoming digital.