EIS and SEIS Tax Relief – Common problems, what can go wrong?

What are the common problems with SEIS and EIS Tax Relief?

With EIS and SEIS Tax Relief, there are several common problems and mistakes made which could have a impact on your claim. Here we cover the common problems and what can go wrong.

Avoid admin mistakes on EIS1/SEIS1 forms

On an investment where there are SEIS and EIS monies, a company can decide how to allocate SEIS and EIS between its investors.  Once included on the SEIS1 and EIS1 forms, it can’t be changed.  If an EIS1 form is submitted by accident in respect of what were intended to be SEIS shares, this cannot be undone. HMRC will not accept a claim for SEIS. However, this is not an issue if an SEIS1 form is submitted in error.

Pay attention if SEIS and EIS Shares are issued on the same day

SEIS shares will not qualify if EIS shares are issued on the same day.  This can be overcome by structuring an investment so SEIS shares are issued for cash on day one (and the register of members written up) and EIS shares are issued at least one day later.

Take note of the EIS 7 year rule – it is important

An EIS investment needs to take place within 7 years of the first commercial sale. This test is open to interpretation and needs to be carefully considered.  It is necessary to look at the first commercial sale of various entities including the company, any subsidiaries, any person who previously carried on the trade, subsidiaries which have been sold etc.

The trading requirement needs to be met for SEIS and EIS Tax Relief

SEIS/EIS companies must meet the trading requirement.  For companies with no subsidiaries this means that if they carry on any investment activities (for example) the company will not qualify unless the investment activities are incidental.

Being controlled by another company is a no go

The SEIS/EIS company must not be under the control of another company.  This is another very broad test, where you need to consider the interests of any entities connected with the controlling company. There is a need therefore to consider all options, warrants, convertible loans etc. to understand if there are any circumstances under which a company might end up controlling the SEIS/EIS company.

How TBAT can help with SEIS and EIS Tax Relief

We support business in claiming through both the Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS). Please contact us for further information.

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