EIS and SEIS — the UK startup investor schemes

What SEIS and EIS actually are

Two parallel schemes administered by HMRC to channel private investment into small UK companies. From the investor's point of view:

Combined: an SEIS investor putting in £100k is effectively risking £30k net of reliefs. That risk reduction is why UK pre-seed rounds are heavily SEIS/EIS-structured.

What the company has to be

Eligibility tests — checked at the time of share issue:

For SEIS:

• UK-based (permanent establishment) and trading (or about to trade)
• Trading for < 3 years
• < 25 employees
• Gross assets < £350,000 at time of investment
• Has not previously raised more than £250,000 under SEIS in total (lifetime limit)
• Carries on a "qualifying trade" — most tech businesses qualify; finance, property, agriculture, hotels, legal services do not
• Not controlled by another company

For EIS:

• UK-based, trading qualifying trade (same exclusions as SEIS)
• < 7 years from first commercial sale (or 10 for "knowledge-intensive")
• < 250 employees (500 for knowledge-intensive)
• Gross assets < £15m before, < £16m after the share issue
• Has not raised > £12m total under EIS+SEIS+VCT (£20m for knowledge-intensive)

A company normally does SEIS first (smaller, earlier-stage limits), then graduates to EIS once it raises more or grows beyond the SEIS thresholds. You cannot raise SEIS after raising EIS — order matters.

What the shares have to be

• Ordinary shares, fully paid up in cash on issue
• Carry no preferential rights to dividends, capital, or assets on a winding-up (this is a big one — most SAFE-style preferred shares do NOT qualify)
• Held for at least 3 years from issue date
• Not redeemable within those 3 years

SAFEs and convertible loan notes don't qualify on conversionunless very carefully structured (advance subscription agreements with no interest/security/preferences). This trips up founders who structure pre-seed via SAFEs thinking SEIS will apply at conversion — it usually won't.

What you have to spend the money on

Within 2 years of the share issue (3 for EIS), the company must spend the funds on qualifying business activities:

• Product development
• Hiring + salary
• Marketing + sales
• Equipment + premises (for the qualifying trade)

Things that disqualify the money:

• Buying another company
• Returning capital to existing shareholders
• Paying off debt that existed pre-investment
• Investing in financial instruments
• Acquiring intangible assets not used in the trade

The compliance timeline

1. Before raising: apply for advance assurance from HMRC. Optional but standard. Investors typically won't commit without it. Typical timeline: 4-8 weeks.
2. Issue shares: document properly — board minute, share certificate per investor, share register updated, SH01 filed with Companies House within 1 month.
3. Wait at least 4 months (or until you've spent 70% of the funds, whichever comes first). HMRC will not issue compliance certificates before this.
4. File SEIS1 or EIS1 (compliance statement) with HMRC. Confirms the company met the qualifying conditions at issue and intends to continue meeting them.
5. HMRC issues SEIS2 / EIS2 (authorisation) typically within 6 weeks.
6. You issue SEIS3 / EIS3 certificates to each investor — these are what they use to claim their income tax relief on self-assessment.
7. Stay compliant for 3 years from the share issue date. Disqualifying actions trigger relief withdrawal from your investors.

What kills the relief mid-flight

Within the 3-year period, certain events trigger HMRC clawing back the relief:

• The company stops carrying on a qualifying trade (e.g. pivots into financial services or property)
• The company is acquired by another company in a non-qualifying way (most acquisitions are non-qualifying)
• An EIS investor takes on a paid role beyond a few specific exemptions (in EIS; SEIS allows directorship)
• The company starts holding too much cash relative to qualifying activity
• The investor disposes of their shares within 3 years

Your investors lose their tax relief — sometimes years after the original investment, with interest. The damage to your investor relationships is significant. Avoid this with proper accountant oversight on any structural change.

Where Ledgers fits

Ledgers doesn't file SEIS/EIS forms or issue investor certificates — that's accountant work. What Ledgers does provide is the underlying audit trail HMRC will check if they enquire:

• When each investor's cash arrived (bank reconciliation)
• What it was used for (categorised expenditure)
• Share allotment events captured (Companies House filings tracker)
• Director's loan account proving funds weren't used to repay shareholders
• Monthly accountant sign-off creating a contemporaneous record

When HMRC asks "show us how the £200k SEIS round was spent", you have an immediate, accountant-signed answer.

The honest disclaimer

SEIS/EIS is high-stakes tax law and this guide is intentionally high-level. The detailed rules around qualifying trades, knowledge-intensive status, advance subscription agreements, secondary share issues, share-class engineering, and disqualifying events are deep and change. Specialist accountants exist for this; angel investors expect you to use one. Treat this guide as orientation, nothing more.