GrantTree Limited. SEIS Guide

Transcription

1 GrantTree Limited SEIS Guide

2 Table of Contents SEIS Overview 2 SEIS Company Perspective 3 SEIS Checklist 4 GrantTree Disclaimer 9 Produced by GrantTree Limited 1

3 SEIS Overview Why should you ensure your company is eligible for the Seed Enterprise Investment Scheme (SEIS)? Introduced in 2012, the SEIS (Seed Enterprise Investment Scheme) is a tax break designed to help new companies in the UK. This one, however, is not targeted at the companies themselves, but at investors in new companies. If they invest in qualifying companies, they can get a significant tax break - up to 78% of their money back in the year that the company starts trading. Additionally, the investor won t have to pay any Capital Gains tax when they sell their shares. Most startups launching today will want to get SEIS status. Professional investors will often expect it and will disregard a startup that doesn't know whether it will qualify for SEIS. Non-professional investors will be easily incentivised by the promise of recovering most of their money right away. Benefits to the Investor - Income Tax relief is available to individuals who subscribe for qualifying shares in a company which meets the SEIS requirements, and who have UK tax liability against which to set the relief. Investors need not be UK resident. Relief is available at 50 per cent of the cost of the shares, on a maximum annual investment of 100,000. The relief is given by way of a reduction of tax liability, providing there is sufficient tax liability against which to set it. - For the tax year only, if the investor disposes of an asset which would give rise to a chargeable gain in , and reinvests all or part of the amount of the gain in shares which also qualify for SEIS income tax relief, the amount reinvested will be exempt from Capital Gains Tax (up to 28 percent). The 100,000 investment limit which applies for income tax relief also applies for re-investment relief. The 'carry-back' facility applies for capital gains re-investment relief as it does for income tax relief. The asset does not have to be disposed of first; the investment in SEIS shares can take place before disposal of the asset, providing that both disposal and investment take place in If the investor has received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for at least three years, any gain is free from Capital Gains Tax (if no claim to Income Tax relief is made, then any subsequent disposal of the shares will not qualify for exemption from Capital Gains Tax). - The investor will also benefit from loss relief in case the investment fails. This will be at their marginal rate of income tax (top rate will be 45 per cent from 2013/14) on the net cost of investment after Income Tax Relief, subject to the company meeting the general conditions for share loss relief. This means they can set 50 per cent of the investment as a loss against their income tax liability, thus potentially leading to an additional 22.5 per cent saving. The investor could lose nothing in this scenario, as they could get 100.5% of their investment back (this is of course, subject to having sufficient tax liabilities to set their investment off against)! Produced by GrantTree Limited 2

4 SEIS Company Perspective The Process Step 1: Ensure your company hasn t disqualified itself Step 2: File an advance assurance form if required Step 3: Complete the share issue correctly (70% of the money spent or 4 months of trading elapsed) Step 4: Prepare the Compliance Statement and send it to HMRC Step 5: Once received, issue the Compliance Certificate to investors Step 6: Investors can use the Compliance Certificate to claim SEIS relief in their Tax Return Our Services - If you would like assistance with the above process we can offer a bespoke service to work on the Advance Assurance, share issue, or compliance statement on your behalf. - Depending on funding objectives we can also assist you in your search for SEIS investors via our partners. - Further down the line, we recommend that you consider taking advantage of other government run schemes to assist in your funding requirements like R&D Tax Credits, TSB Grants, and Patent Box. Please have a look at our website for more details, and contact us for more clarity on eligibility. Produced by GrantTree Limited 2

5 Checklist Definitions Period A: Incorporation of company -> 3rd anniversary of issue date of the shares Period B: Issue of the shares -> 3rd anniversary of issue date of the shares Subsidiary: Any company which at any time in period A is a 51% subsidiary of the company. (no exceptions for difference in timing of ownership/subsidiary nature) Company requirements Trading Issuing Company must exist wholly for the purpose of carrying on a qualifying trade R&D and Preparing to carry on the trade are ok, but if 20% or more of the business s activities are not qualifying, the business as a whole won t qualify. The company must be carrying on that trade itself, directly. UK Establishment Issuing Company must have a permanent establishment in the UK Financial Health Issuing Company must not be in Financial Difficulties before the issue E.g. no insolvencies, Voluntary Agreements, etc. Unquoted Issuing Company must not be quoted on any stock market Shares must not be available to the public Issuing Company must not be a subsidiary of another company Independence Issuing Company must not enter anything that looks like a partnership or joint venture during Period A There must not be any arrangements in place that could lead to this happening now or in the future. Produced by GrantTree Limited 4

6 Control Issuing company should not control any other companies There must not be any arrangements in place that could lead to this happening. Gross Assets Issuing Company must not have more than 200k in assets FTEs Issuing Company must not have more than 25 FTEs Directors count, as do part-time employees. EIS/VCT Issuing Company must not have previously raised money through EIS/VCT EIS/VCT can be pursued after using up the SEIS allowance. Investment amount Only 150k can qualify for SEIS relief for the whole life of the company You can raise more, but it won t get SEIS relief. Produced by GrantTree Limited 5

7 Investor Requirements Maximum Investment Investor should not invest more than 100k/year in SEIS companies If more than 100k is invested, only 100k will qualify for SEIS relief. Not employee Investor must not be an employee of the company at any time in Period B Directorships don t count, but this also applies to any associates of the investor (e.g. spouse, parent, business partner, etc). Substantial Interest Investor must not have or be entitled to a substantial interest in the company Substantial interest is over 30% of: the issued shares; the ordinary shares; the voting power; the assets if the company is wound up or assets are distributed for any other reason. Related investments There should be no related investment There could be a related investment in a company where no one has a substantial interest, but to be sure to qualify, stay away from related investments. Linked Loans There can be no linked loans I.e. no loans (or debt transfers, or anything like it) which would not have been made, or would have been made on different terms, without the investment. Tax Avoidance The investment must be for genuine commercial reasons If you re contriving an SEIS investment to reduce your tax (rather than because you want to invest in the business), you ll probably not qualify. Produced by GrantTree Limited 6

8 Value Transfer The investor should not receive value from the company other than the shares purchased Some value transfers may be ok (so long as all deals are at arm s length, normal market value, etc), but the safest approach is to avoid having business relationships outside of the share purchase. Value includes benefits and expense payments. Exception is made for normal benefits/expenses/salaries for a Director. Length of shareholding The shares must be held for the length of period B for relief to be retained. If they are disposed of within period B, relief will be withdrawn or reduced. Produced by GrantTree Limited 7

9 Share Requirements No preferential rights, present or future Ordinary shares No special classes No dilution protections There must not be any arrangements in place that could lead to this happening. Paid wholly in cash Shares must be issued properly and paid promptly A delay in payment will probably disqualify the shares. Purpose Shares must be issued for the purpose of carrying out the qualifying trade The money must actually be spent for that purpose too There must be no special arrangements for disposal (repurchase, exchange, etc) of the shares Pre-arranged exits There must be no arrangements reducing the risk for the investor SEIS already reduces the risk by up to 80%. HMRC is clear that there can be no other risk reduction - this includes arrangements made before the issue, during the issue, or discussed or alluded to before/during the issue. Issuing Company must not be a subsidiary of another company Independence Issuing Company must not enter anything that looks like a partnership or joint venture during Period A There must not be any arrangements in place that could lead to this happening. Contrived Investment The company must not be made up just to get SEIS relief If you have an existing company qualifying a trade, you can t start another company and transfer the trade there just to get SEIS relief. Produced by GrantTree Limited 8

10 Disclaimer This document does not represent any guarantee by GrantTree or anyone else that your business will qualify for SEIS. No such guarantee can be obtained, and even after SEIS has been successfully granted, a Compliance Certificate has been issued, and investors have claimed their relief, HMRC can still go back and recover the relief if they feel that information was misrepresented or omitted. Under no circumstance is GrantTree to be held liable if you fail to qualify for SEIS for any reason whether connected to this document or not. The checklist is based on a streamlined process which simplifies SEIS qualification. For example, there are many complex rules about the circumstances in which investors can loan money to or receive value from the Issuing Company. The checklist simplifies these rules by disallowing any loans, to ensure the company is not disqualified based on a difference or change in understanding of the rules by HMRC or anyone else. The difference between an undebatable HMRC requirement and a streamlined one is indicated by use of the word should instead of must. If anything is unclear, if you have a question, ask HMRC, don t assume! Produced by GrantTree Limited 9

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