What is SEIS equity investment scheme?

SEIS is a government scheme designed to help young companies raise money when they start to trade and grow with the aim of providing a boost to economic growth in the UK. The way it does this is by offering tax reliefs to the individual investors who buy shares in small companies.

The investors can choose to use this relief in order to reduce either their current tax bill or that of the previous tax year. SEIS works by motivating individuals to invest in small businesses in exchange for additional tax relief as well as equity.

If you’re currently talking to investors and have mentioned SEIS, it’s likely you would have been asked when the investment will close. That’s because it is the date of the equity transaction that qualifies the investor for relief.

In most cases, you’ll see these SEIS transactions complete on the 4th or 5th of April in order to qualify them for relief in the current tax year.

So, as a small business owner, what can you do to make your company more attractive to SEIS investors in time?

Get advanced assurance from HMRC

‘Advanced reassurance’ is just a letter from HMRC stating that you have met their criteria for an investor to qualify for SEIS reliefs. You’ll find that very few investors will go ahead with their investment until you have this, so ensuring you get it beforehand will help save time in the future, and mean you are more likely to meet the April 5th deadline.

This advanced assurance also proves that your company is trading in a ‘qualified trade’, so investors can rest assured that they will qualify for relief with you.

It proves that your business has only been trading for less than two years, has less than £200,000 in gross assets, and employs no more than 25 full-time (or the equivalent) employees. With HMRC’s stamp of approval, investors are more likely to feel comfortable investing in your business.

Although it is not statutory, the advanced assurance reassures investors that they will be able to claim back their reliefs from their investment – which can be worth 50% or higher than the value of the investment!

To apply for advanced assurance from HMRC fill out the form EIS/SEIS online and provide a simple business plan as well as any financial accounts and details of potential share issuing you may have planned.

This application can take four weeks or longer to process, so if you’re thinking of raising equity investment, it’s vital you apply early.

Prepare your investment proposal

While the advanced assurance lets investors know your business is a safe bet, they’ll still want to know why your company is the best option for them.

The SEIS is an extremely popular scheme with many start-ups across the country, so attracting and impressing an investor can be a highly competitive process. In the frenzied first quarter, it’s unlikely you’ll be given a second chance by an investor before they move on to the next company.

With your Maple accountant, ensure you prepare an investment proposal that shows off what your business is worth, make sure you include:

  • Your business and marketing plan

You may already have your business plan in place, and if not, our team can easily help you create one.

However, you’ll also need to prepare a comprehensive plan showing how, when and where you will communicate your offers to potential customers, including a budget and predicted return for each different campaign.

A lot of the business plans we see are great, but many forget to take marketing into account. This is such a vital part of any business’ success, so including it in your proposal will be essential for investors.

  • Your profit and revenue projections

You’ll also need to clearly demonstrate when and how the business is expected to grow in the future. If you’re just starting out, investors will want to know how long it will take for you to start making money, and if your predictions are realistic.

Projections that are based on fact and logic, rather than just assumptions, will be needed to reel in potential investors.

  • Your Cashflow

All revenue, cost, profit and expenditure should fit into your cashflow forecasts. Your investors will want to see how long you expect the investment to last; leading on to our next point.

  • What the investment money will be spent on

You wouldn’t ask the bank for a mortgage without showing them the property, so you can’t expect an investor to hand over money without knowing where it will go.

New equipment or assets that will benefit the company’s productivity and profitability are ideal. You can expect reluctance from investors if their investment will be used to simply keep the company running, say for paying employee wages or bills.

  • Any evidence you may have

Make sure you include any research, statistics, conversations or past experiences you may have had that will make your investors feel more confident in your proposal.

Showing that there is a clear demand for your product or service if you are yet to start trading, or any invoices from current customers will prove your business has the potential to turn a profit.

The most important thing that you can show investors is that it’s worth putting their money into. Letting them know the confidence you have in your business and your aspirations for the future will also go a long way in attracting investment.

If you’re interested in SEIS equity investment for your business, contact Maple Accountancy today or call 01332 207 336