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

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In this Ultimate Guide to applying for SEIS/EIS HMRC Advance Assurance, we aim to help you raise your equity funding tax efficiently

Watch this short video as we walk you through the key points in preparing and filing an advance assurance application to HMRC under SEIS/EIS. You can download the slides for your reference here.

The SEIS & EIS HMRC Advance Assurance application process allows companies that are seeking equity funding to seek clearance from HM Revenue & Customs that they are a qualifying company under these valuable tax incentives prior to receiving the funding and issuing the relevant shares to investors.

Our aim is to provide a detailed guide for entrepreneurs and founders on how to apply for SEIS and/or EIS HMRC advance assurance.

We’ve called it the ultimate guide!

What are the SEIS and EIS tax incentives?

First of all, let’s kick off with a refresher on what are the SEIS and EIS tax reliefs for companies and investors?

Both are equity-based reliefs. So you must issue new shares in return for cash funding to be eligible under either tax incentive.

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 this can be different from the date of incorporation).

Companies can raise that up to £150,000 under SEIS. Investors can receive 50% income tax relief and a capital gains tax-free exit. So it’s a fantastic result for the investor. You can see why this tax incentive is so valuable.

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.

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.

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 approval that, based on the information provided, your company is a qualifying company under SEIS and/or the EIS relief.

Note the term “advance” assurance. The key idea is that you seek approval before you go ahead and deposit 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 do fall within the requirements, or they will reject it. Unfortunately, there is no formal appeal process if they do reject it, but we’ll cover that further in a moment.

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).

Here is an excerpt from a letter from HMRC that grants advance assurance in relation to both SEIS and EIS:

SEIS EIS HMRC successful advance assurance application
Here is an example excerpt from a successful application for both SEIS and EIS as granted by HMRC

Do I have to file an application for advanced assurance?

The quick answer is no. It is not a mandatory process.

However, skipping this opportunity is a risk that you probably don’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 charge-on with the assumption that you do qualify; it could be a painful discussion with your investors if you have to inform them that it transpires that you didn’t actually qualify (this could raise its ugly head when you apply to HMRC for the tax certificates for the investors, as you can’t skip this step…)

Regardless, when you apply for the compliance certificates, one of the first questions on the relevant 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 any case!

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 tax year-end in the UK, which can be busy. 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?

Before diving into the detail on exactly what information HMRC wants, 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 a qualifying company under the rules?
  • Are the shares to be issued eligible shares?
  • 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 VCT monies or anything else?
  • And are there potential investors lined up?

What information is required for an advance assurance application?

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.

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 what you have.

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 that 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 back and say, “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’ve really got to share with HMRC as well.

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 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.

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.

EIS SEIS HMRC Advance Assurance form
Here is the formal HMRC SEIS/EIS Advance Assurance application form

This form has been updated fairly recently and it is much better than 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 covering 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 to 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 corporation tax number (UTR) on any correspondence from HMRC in relation to corporation tax (‘corporation tax’ is your company’s tax).

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.

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 to [email protected].

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?

There’s no form right of appeal, as mentioned above, but all it is not necessarily lost.

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.

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 a 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. This stage allows the investors to claim the tax reliefs – provided HMRC grants the compliance certificates (SEIS3/EIS3).

The compliance certificate 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): being 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)

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 (max) and the remainder under EIS.

If you go down this path, you just need to 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 share issue. We would recommend allowing at least one day to elapse in between the SEIS and EIS share issues to help demonstrate that the SEIS shares were issued first.

Don’t forget the size limits

For SEIS there is a £200,000 gross assets limit at the time of issue of shares 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. Note that the test is one of ‘trading’, not incorporation.

For EIS, there is a fairly new rule that 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, whereby you’ve got to be able to share details of your prospective investors within your advance assurance application form i.e. their name(s) and address(es).

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

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 benefit from the Seed Enterprise Investment Scheme for the first £150,000 raised and then the Enterprise Investment Scheme for the remainder.

Then the company shifts to the development phase. It develops new products or services with the SES/EIS cash that it raised. It now benefits from the R&D tax credit relief which is 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 on worldwide income derived from qualifying patents – a 10% corporation tax rate.

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.

We operate on a fixed fee basis. Reach out to learn more: