How EIS and SEIS can power regional businesses
Founded by a team of industry veterans— Jim Odell, Justin Urquhart Stewart, Paul Newsham, Martin Taylor, Michael Mcdowell, and Tony Backhouse—Regionally Ventures is committed to bridging the funding gap for high-growth regional businesses across the UK. With 70p of every £1 traditionally invested in London, regional businesses represent a valuable, yet often overlooked, segment of the market.
Let’s face it, securing investment outside of London can be a nightmare. Despite the passion and innovation driving these businesses, they frequently struggle to attract suitable investors because of their location. That’s where Regionally Ventures, along with the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), can help. These schemes provide critical support for early-stage businesses by attracting investors through generous tax incentives, and helping those businesses to grow, scale, and succeed.
What are SEIS and EIS?
Both EIS and SEIS are government-backed schemes designed to encourage private investment in small and medium-sized businesses by offering tax relief to investors. These schemes are particularly valuable for early-stage and high-growth regional businesses that may not have access to traditional funding options.
Seed Enterprise Investment Scheme (SEIS):
SEIS is targeted at very early-stage companies, making it ideal for businesses that are in their first few years of trading and need seed funding to grow.
Key Features:
Companies can raise up to £250,000 through SEIS investments.
Companies must have been trading for less than three years.
The company’s gross assets must be below £350,000.
SEIS provides investors with 50% tax relief on their investment, making it highly attractive for individuals seeking early-stage opportunities
Enterprise Investment Scheme (EIS):
EIS is aimed at more established, high-growth businesses that are looking to scale.
Key Features:
Companies can raise up to £5 million per year, with a lifetime cap of £12 million.
The company must be trading for less than seven years and have gross assets below £15 million.
Investors can claim 30% tax relief on their investments.
What Makes SEIS and EIS Attractive to Investors?
SEIS and EIS are among the most appealing schemes available to investors because of the substantial tax benefits. Here’s whyr:
Tax Relief:
SEIS investors can claim 50% tax relief on their investments, while EIS investors can claim 30%. This significantly reduces the risk for investors, making them more likely to fund early-stage businesses.
Capital Gains Tax Exemption:
Any capital gains from SEIS or EIS investments are exempt from Capital Gains Tax (CGT), provided the shares are held for at least three years.
Loss Relief:
If the business fails, investors can claim Loss Relief, allowing them to offset losses against income tax, reducing the overall financial risk of the investment.
Inheritance Tax Relief:
Investments made through SEIS and EIS are exempt from Inheritance Tax if held for more than two years, making them even more appealing to high-net-worth (HNW) individuals.
Eligibility for SEIS and EIS: What Businesses Need to Know
Not every business qualifies for SEIS or EIS funding, so it's essential that you understand the eligibility requirements before applying.
For SEIS:
Your company must have been trading for less than three years
It must have fewer than 25 full-time employees
The company’s gross assets must be less than £350,000 before shares are issued
The company can raise up to £250,000 through SEIS
For EIS:
The company must be trading for less than seven years.
It must have fewer than 250 full-time employees.
The company’s gross assets must be less than £15 million before shares are issued.
The company can raise up to £5 million per year through EIS, with a maximum of £12 million over the company’s lifetime.
The 4-Month Rule: What is it?
You might have heard of the 4-month rule. It’s an important aspect of both SEIS and EIS. It means that the company must start spending the funds raised through SEIS or EIS within four months of receiving the investment. This ensures that the money is being used to grow and scale the business promptly, rather than sitting idle.
Failing to adhere to this rule could affect your company’s eligibility for future SEIS or EIS funding, so it’s crucial to have a clear plan for how you’ll deploy the capital.
What You Need to Apply for SEIS or EIS
To apply for SEIS or EIS, businesses must ensure they meet specific criteria and prepare key documentation to streamline the process. Here's what you'll need:
Advance Assurance: Before applying, you should request Advance Assurance from HMRC. This gives potential investors confidence that your company qualifies for SEIS or EIS, which can make it easier to secure funding. The application involves providing details about your company, your investment plans, and why you're seeking the funding.
Business Plan and Financial Forecasts: Investors will want to see a comprehensive business plan that outlines your vision, growth strategies, and how you intend to use the funds. Financial forecasts are critical for demonstrating how their investment will help you achieve key milestones.
Company Information: Ensure your company is registered with Companies House and complies with all legal and regulatory requirements. You’ll need to submit information including:
Company incorporation details
A copy of your most recent financial statements
Your business activities and future plans for growth
Shareholder and Investment Information: You must provide details of your current shareholders and how much investment you're looking to raise. Ensure that the proposed shares you offer comply with SEIS or EIS rules, such as not offering preference shares.
Use of Funds Plan: HMRC requires a clear plan for how you’ll use the investment funds. This ties into the 4-month rule, which states that you must start deploying any capital within four months of receiving it. Whether it's for product development, scaling operations, or market expansion, you should outline exactly how the funds will be spent.
“Securing EIS or SEIS approval is a critical step for regional businesses seeking investment and growth. At Regionally Ventures, we understand the challenges involved in navigating these schemes. That’s why we offer support throughout the entire application process, ensuring companies meet the stringent criteria and maximise their chances of success.“
- Paul Newsham, Finance Director, Regionally VenturesWhat Can You Do Once You Have SEIS or EIS?
Once your company qualifies for SEIS or EIS, it opens doors to attract new investors. Having SEIS or EIS approval signals to investors that your business has met stringent criteria and offers significant tax benefits, making it an attractive investment opportunity.
Here’s what you can do with SEIS or EIS:
Attract Investors: With tax relief of up to 50%, businesses using SEIS or EIS can pitch to a broader range of investors.
Boost Credibility: SEIS and EIS accreditation tells investors that your business is serious and compliant with regulatory requirements. This boosts your credibility and attractiveness to both angel investors and venture capitalists.
Accelerate Growth: Once funding is secured, you can use the capital to grow your business—whether that means scaling operations, entering new markets, or developing new products.
Mitigate Risk: For businesses that are perceived as higher risk, such as early-stage or regional companies, SEIS and EIS reduce the investor’s risk through tax incentives. This increases your chances of raising the capital needed.
Why SEIS and EIS are Vital for Regional Businesses
Many regional businesses, despite having innovative ideas and strong leadership, often face difficulties in attracting funds via traditional investment channels. The EIS and SEIS schemes provide these companies with a way to compete for investment.
At Regionally Ventures, we are committed to helping regional businesses tap into these opportunities by:
Advising on Eligibility: We help you navigate the complexities of SEIS and EIS, ensuring that you meet the eligibility criteria and maximise your chances of attracting investment.
Connecting You with Investors: We introduce businesses to a pool of investors who are eager to benefit from SEIS and EIS tax relief.
Supporting Your Growth: Once you secure investment, we continue to offer strategic advice, helping you deploy the capital effectively and scale your business.
SEIS and EIS are powerful tools for regional businesses seeking investment to grow. They offer substantial benefits for both businesses and investors, making it easier to secure funding while offering tax incentives that make investments more attractive. For passionate entrepreneurs and regional business owners, SEIS and EIS are vital in levelling the playing field and giving them the opportunity to thrive.
At Regionally Ventures, we’re dedicated to empowering regional businesses with the right tools and connections to secure funding through SEIS and EIS. Whether you need help navigating the eligibility requirements, preparing your documentation, or connecting with investors, our team is here to guide you every step of the way. Contact us today to explore how we can help you unlock your growth potential and secure the investment your business needs to thrive.