How to apply for SEIS & EIS Advance Assurance (Ultimate Guide)

Watch this short video as we walk you through the key points in preparing and filing an advance assurance application to HMRC under the Seed Enterprise Investment Scheme (SEIS) or the Enterprise Investment Scheme (EIS).

The SEIS/EIS Advance Assurance application process allows companies that are contemplating equity/share-based funding to seek clearance from HM Revenue & Customs ('HMRC') that they are a qualifying company under these valuable tax incentives prior to raising the funding.

Our aim is to provide a comprehensive overview for entrepreneurs and founders on how to apply for SEIS EIS HMRC advance assurance.

The Seed Enterprise Investment Scheme (SEIS) is for early-stage companies i.e. those companies that have been trading for less than two years (note that it is the trading date that is important rather than the date of incorporation). Note also that the age limit is set to increase to three years from April 2023.

Companies can currently raise up to £150,000 under SEIS (set to increase to £250,000 from April 2023). Investors receive 50% income tax relief on the amount they invest and a capital gains tax-free exit. So it’s a fantastic result for the investor.

All UK individuals currently have a £100,000 annual SEIS investment allowance (set to increase to £200,000 from April 2023).

The Enterprise Investment Scheme (EIS) is for growth companies, typically less than seven years old and they can raise up to £5 million per year under current rules (max of £12m or £20m for Knowledge Intensive companies).

All UK individuals have a £1m annual EIS investment allowance.

EIS investors, in this case, can claim 30% income tax relief and also get a CGT free exit. But you can see it is a lower income tax relief under EIS compared to under SEIS.

In both SEIS and EIS, the investee company must carry out a qualifying trade. HMRC has a list of excluded activities (such as investment property development, financial services etc) that you must check to ensure that your planned business activities are not precluded.

What is the HMRC advance assurance process for SEIS and EIS?

Given how valuable these tax reliefs can be for investors (and in attracting potential investors), the tax rules are quite complex and restrictive in certain areas.

Fortunately, there is a formal HMRC advance assurance service that allows you, as a company founder, to approach HMRC to seek pre-approval. HMRC will consider your case from their specialist HMRC Venture Capital unit and based on the information provided, confirm whether your company is a qualifying company under SEIS and/or the EIS relief.

Note the term “advance” assurance (or sometimes mistakenly referred to as "Advanced Assurance"). The key idea is that you seek approval before you go ahead and receive the funding and issue the shares to the investors under either relief.

HMRC will consider your application and either grant assurance i.e. agree that you satisfy the requirements, or they will reject it.

So why is the advance assurance valuable?

Many business angel investors will insist on you securing pre-approval status from HMRC in relation to SEIS and/or EIS before they will commit their funds.

It is worth noting that HMRC will not comment on the eligibility of investors themselves. That’s the next stage when you apply for the compliance certificates (more on this later).

Is it mandatory to file an application for advance assurance?

The quick answer is no. Filing an advance assurance application is not a mandatory process.

However, skipping this opportunity to secure some degree of certainty for your investors is a risk that you probably won’t want to take as the rules are complex...

If you proceed down the channel of doing a bit of DIY research, and then you march forward with the assumption that you do qualify; it could be a painful discussion with your investors if you have to inform them further down the line that you didn’t actually qualify due to some 'unforeseen technicality'.

This issue would most likely raise its ugly head when you apply to HMRC (by filing form SEIS1) for the tax certificates for the investors (forms SEIS3), as you can’t skip this step…

When you apply for the SEIS3 compliance certificates, one of the first questions on the relevant HMRC form is whether you have secured advance assurance? You will have to tick “no” and then this unlocks a series of additional questions that is akin to preparing an advance assurance application in the first place.

So we advise that you follow this advance assurance process and seek to secure this valuable advance assurance in pretty much every case.

How long does it take to apply for SEIS/EIS advance assurance?

We recommend that you allow up to 30 days. It can be quicker. It really depends on the time of year.

Peak times of the year are April, which is the personal tax year-end in the UK, which can be busy - as investors look to lock-in some tax relief and use up their SEIS/EIS allowances before the tax year ends on 5 April.

As an aside, it is notable that HMRC processing times have got much quicker since the fairly recent introduction of the requirement for a list of prospective investors to be included in advance assurance applications – this must have had the intended effect of scaling down the number of more ‘speculative’ applications.

It is worth reiterating that there is no right of appeal. So you need to ensure that you file a full and complete and accurate application on initial submission to mitigate the risk of rejection. Aim to get it right the first time.

Any rejection can be rectified in cases where a change of arrangements might allow you to fall within the rules. But you would need to revert back to HMRC and so this is going to extend the time-frame.

What information is needed for a SEIS/EIS advance assurance application?

Before diving into the detail on exactly what information HMRC requires, it is worth stepping back to think about why they want it and what are they thinking about?

So HMRC is concerned with:

• Is your company an eligible company under the rules e.g. share capital structure etc?
• Will your company be carrying out a qualifying trade?
• Are the shares to be issued eligible ordinary shares? What are the current issued shares e.g. different classes, rights etc?
• That you have a UK tax presence and that your company is not listed on a recognised stock exchange (AIM is permitted i.e. not deemed 'recognised')
• Details of previous venture capital funding you may have received
• What will the cash that you can raise under these reliefs be used for?
• Is there more than one company (so is there a group that you've got and if so which company will use the cash because there are certain rules around this)?
• Is there sufficient risk to capital? And this is a much greater emphasis on this recently in terms of what are you using the money for? Is there a risk that the investors could lose their capital? And are you seeking growth through your funding?
• Has the company received any other funding? So has it received any EIS before or Venture Capital Trust (VCT) monies or other de minimis funding?
• Is there at least one proposed eligible investor interested?

How much you hope to raise?

The exact figure doesn’t necessarily have to be nailed down but provides an estimate of what you are hoping to raise. Don't simply enter the current maximum for SEIS of £150,000 or £5m for EIS either (as HMRC will likely reject it) - you need to provide a reasonable estimate (ideally based on your business plan and cashflow forecasting showing the funding being used up).

Be mindful of the limits though. For example, there is no point applying solely for SEIS and stating in your application that you are looking to raise £500,000 under the SEIS scheme. It will raise immediate alarm bells at HMRC given that the maximum amount you can raise under SEIS is £150,000 (until April 2023)! It would, however, be perfectly fine to specify that you intend to raise the first £150,000 under SEIS and the remaining £350,000 under EIS in this scenario.

Business plan or other forecasts

This should be the financial information that you are sharing with your investors. You don’t necessarily have to reinvent the wheel and provide increased information to HMRC – use and share what you have available.

A copy of the latest accounts, if available.

If this is a newly formed company (more likely under SEIS), then you may not have accounts available and that’s fine. If you haven’t got any published accounts, just state this in your covering letter.

Which companies will use the investments?

If you have a group situation e.g. with subsidiary companies, explain which companies will be using the cash raised (hint: they should be at least 90% owned subsidiaries if using the cash raised and all subsidiaries must be more than 50% owned).

Details of all trading and activities to be carried out and how much you expect to spend on each activity?

Note that there are certain excluded activities. So HMRC is keen to understand what you are going to spend the money on and to ensure that at least 80% of it is going to be spent on non-excluded activities.

List the amounts and dates of any venture capital schemes in which you’ve previously received an investment.

Remember that you can’t claim SEIS eligibility if you have already received funding under EIS. Also, you can’t receive more than £150,000 in total under SEIS.

An up to date copy of the memorandum and articles of association and details of any changes you expect to make.

You tend to find now that HMRC is more keen to see the final versions of the constitutional documents such as the Articles.

It used to be the case that you could say that “these are the Articles, and we’re not expecting to make any material changes” but now HMRC will likely revert stating,

“we’ll give you a provisional clearance, but we want to see exactly what changes you have made to the Articles before we can give you a final opinion”.

So ideally aim for a full, complete and final application when you file first time.

You must also provide a copy of the register of members from the date you apply for advance assurance

Basically a breakdown of the existing shareholders.

The latest draft of any documents you use to explain your proposal to potential investments investors.

So again, whatever you’re sharing with the investors, you must share with HMRC too.

Details of any other agreements between the company and the shareholders.

Again, so any side agreements here, you’ve got to share them with HMRC.

A signed letter from one of the directors if you’re allowing an agent to act on your behalf.

We use a proforma for our SEIS/EIS tax agent status when we are applying on behalf of client companies.

Any other documents that show you meet the qualifying conditions for the scheme.

The covering letter can specify any further points plus attach any other documents of relevance to the funding and/or future activities of the company.

For example, details of any Advance Subscription Agreements ('ASA') that you are implementing as part of the funding round, if applicable.

So what forms do I need to complete and how, where do I file them?

There is a pro-forma HMRC SEIS/EIS Advance Assurance Application form that you must complete.

This form has been updated fairly recently and it is improved compared to the previous version as it now gives you additional options – such as being able to specify whether you are seeking SEIS clearance or EIS or both (revolutionary, I know!)

We advise that you also include a cover letter. Why?

This is a formal clearance application and it is useful to set out the background on any issues of which you may be unsure.

Also, it helps mitigate the issue of HMRC reverting back at some stage in the future saying:

“well you didn’t tell us about X, Y, Z in your advance assurance application form and if we’d known about that, we may not have granted you with the clearance in the first place”

Whereas, in our view, the inclusion of covering letter gives you an option to be upfront with all relevant matters.

This helps ensure that any clearance granted by HMRC can stand up to any future scrutiny.

Other points to note on advance assurance applications

Corporation tax reference (UTR)

You will find your 10 digit unique corporation tax number (UTR) on any correspondence from HMRC in relation to corporation tax (‘corporation tax’ is your company’s tax).

More help on finding this if you've lost it here:

Unfortunately, you must include your company UTR in your advance assurance application form as otherwise HMRC will reject your application during their pre-screening process.

If you can’t find it, look for your Companies House registration number. And again, if you can’t find that, it’s very easy to find on the Companies House website. You can do a free search for your company and then you’ll see your company number. And it’s also good to make sure you have the correct registered address, date of incorporation, etc.

You can copy and paste this information straight into the form rather than frantically searching through files to try to find the correct documents!

Business Plan

The business plan should cover whatever you’ve shared with your investors.

If you’re raising a fairly small amount, you may not have a huge pitch deck and 3-5 years’ worth of financial forecasts. But in pretty much every case, you would presume that you would have some sort of document that you would have shared e.g. a pdf or some slides.

Even if it’s a few pages explaining what the proposition is, what you’re looking to achieve and what the growth prospects could be. Plus maybe an outline of some very high-level figures as to what costs you’re looking to incur and the growth you’re looking to achieve.

Again, you don’t have to reinvent the wheel. Just try and provide whatever information you can.

Articles of Association

Try to ensure that any proposed changes are final, if possible, and already drafted in your submission. Otherwise, you may need to get back to HMRC again. So it can just extend the whole time frame which you want to avoid.

Don’t forget the size limits

For SEIS, there is a £200,000 gross assets limit at the time of issue of shares (set to increase to £350,000 from April 2023). And there must also be less than 25 employees.

Also, watch the company age limits. For SEIS, you must have been trading for less than two years under current rules (set to increase to three years from April 2023). Note that the test is one of ‘trading’, not incorporation.

For EIS, the company must have been trading for less than seven years (10 years for ‘knowledge-intensive’ companies).

Prospective investor details requirement

Another relatively new requirement – that creates a kind of ‘chicken and egg’ situation – is that you must share details of your prospective investors within your advance assurance application form i.e. their name(s) and address(es).

You will not necessarily be penalised if the same investors do not proceed or if they invest a differing amount to that disclosed.

The idea is to hone down the application process to those companies that are genuinely likely to follow through with investment and therefore, to save limited HMRC review resources from otherwise being wasted reviewing 'speculative applications'.

HMRC is screening applications up-front. So if you don’t include the prospective investor details, then it will likely get rejected within a few days of submission.

How to file the SEIS/EIS advance assurance form with HMRC

The quickest way to file the form is to email it along with your covering letter and all other attachments as PDFs to enterprise.centre@hmrc.gov.uk.

Don’t forget to include your tax agent signed SEIS/EIS authority letter if you have an advisor acting on your behalf.

What if my application is rejected?

Consider where any potential changes to the arrangements or structure or activities could be made to fall within the rules and therefore appease the reasons for rejection.

The reason for rejection may be something that is commercially insurmountable to change; however, this may not be the case. In which case, you could revert back to HMRC with revisions to see if assurance can be granted on this revised basis.

How to raise SEIS and EIS funding at the same time

Many startups choose to raise funding under both SEIS and EIS at the same time. This is no problem in principle and is actually very common.

For example, many startups may wish to raise say £1m in which case they may choose to raise the first £150,000 under SEIS (current max until April 2023, when the limit hits £250,000) and the remainder under EIS.

If you go down this path, you must ensure that you issue the shares in the correct order: SEIS first and then EIS.

There is no problem with raising all of the cash at once, so long as you get the paperwork right on the timing of the share issues.

We would recommend allowing at least one day to elapse in between the SEIS and EIS share issues. This helps clearly demonstrate that the SEIS shares were issued before the EIS shares.

What happens after seeking advance assurance?

Firstly, congratulations – you are now holding a very valuable piece of paper!

It will be requested by the majority of potential investors and it is a big tick in the box for you as an eligible company and, more importantly, for your funding prospects.

But it’s not the end of the road in your SEIS/EIS journey, I’m afraid…

You can go ahead and raise the funding and issue the shares.

As a side-note, take care when issuing the shares. There are steps that you can unwittingly take that can potentially jeopardise the SEIS/EIS relief.

The next key stage on your journey is to seek ‘compliance certificates’ for the investors from HMRC (by filing Compliance Statement Form SEIS1/EIS1). This stage allows the investors to claim the tax reliefs – provided HMRC grants the compliance certificates (SEIS3/EIS3). The investors will normally claim the tax relief via their tax returns using the Unique Investment Reference that HMRC will provide on the SEIS3 form.

The compliance certificate tax return application stage is mandatory. Without these certificates, your investors cannot claim the tax reliefs.

There are time limits for the earliest that you can file the compliance forms (SEIS1 or EIS1). These are the earlier of: trading for four months or if you haven’t started trading yet, you must have spent at least 70% of the cash that you raised under that particular round of investment.

The final thing point to note on your SEIS/EIS journey is that you must retain your SEIS/EIS qualifying status for the designated period (broadly three years).

Innovation Life Cycle

It is helpful to stand back and see how the SEIS/EIS tax incentives fit into the wider tax incentives aimed at the innovation life cycle of an ambitious entrepreneurial business.

We commonly see our clients working through this process whereby they have the startup phase and they are attracting funding. At this stage, they may benefit from the Seed Enterprise Investment Scheme (SEIS) for the first £150,000 raised. It could then benefit from the Enterprise Investment Scheme for the remainder.

Then the company shifts to the development phase. It develops new products or services with the SEIS/EIS cash that it raised. It can benefit from the R&D tax credit relief – one of the most generous tax reliefs in the UK tax code. The company can recover up to 33% of the qualifying expenditure on R&D.

Next is the commercialisation phase, and the company benefits from the Patent Box. This tax incentive provides a beneficial rate of corporation tax of 10% on worldwide income derived from qualifying patents.

So you can see how the innovation cycle fits together in terms of these UK innovation-based tax incentives.

Where you can get help?

We routinely prepare a file SEIS/EIS advance assurance applications on behalf of companies every month (as well as R&D tax relief and other innovation tax incentives).

We have a deep understanding of the often complex rules and can help you navigate them to reach a successful result.