Investing in high-growth potential, smaller, and younger UK companies is a strategic move for both entrepreneurs and investors seeking to tap into the nation's vibrant startup ecosystem. To facilitate easier access to crucial investment for these companies the UK Government introduced the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) promoting growth and innovation in the UK business landscape.
The primary function of SEIS and EIS is to provide tax relief to investors who choose to purchase shares in eligible businesses.
Seed Enterprise Investment Scheme (SEIS):
SEIS is strategically designed to support startups and early-stage businesses. This program targets companies with less than three years of trading history and no more than 25 employees. Individual investors, as opposed to companies, can inject up to £200,000 into an SEIS business per tax year. Notably, SEIS companies can accept a maximum of £250,000 in SEIS funding overall.
Enterprise Investment Scheme (EIS):
In contrast, EIS caters to larger and more established businesses, extending its support to companies with up to seven years of trading history and a workforce of up to 250 employees. Both individual and corporate investors can contribute up to £1 million per tax year. While the company can accept up to £5 million annually, the cumulative EIS funding cannot exceed £12 million. It's worth noting that corporate investors in EIS do not receive tax relief on their investment.
Knowledge Intensive Companies (KIC) Criteria in EIS
EIS introduces distinct criteria for Knowledge Intensive Companies (KIC), typically those with substantial research and development costs. These companies can accept EIS funding within ten years of trading and may have up to 500 employees. In this category, businesses can secure up to £10 million in funding per tax year and a total of £20 million under the EIS scheme.In conclusion, both SEIS and EIS play pivotal roles in shaping the investment landscape for UK startups, offering incentives that contribute to the growth and sustainability of these businesses.