SEIS: Navigating the Practical Issues of New Limits Not Becoming Law Until July 2023

Here we cover some practical issues in dealing with the new rules under the Seed Enterprise Investment Scheme (SEIS) that should have effect from 6 April 2023 (but that don't become law until July 2023...)

SEIS: Navigating the Practical Issues of New Limits Not Becoming Law Until July 2023

Summary of the new rules:

With effect from 6 April 2023:

  1. Total investment amount for start-up companies increased from £150,000 to £250,000 under SEIS
  2. Amount that individuals can invest in SEIS companies increased from £100,000 to £200,000 per tax year
  3. Allowable trading age limit of the SEIS company increased from two years to three years
  4. Gross (total) assets of the company at the time of the SEIS share issue increased from £200,000 to £350,000.

But there is a problem...

The relevant Finance Bill that includes the above proposed changes is still progressing through the House of Commons and has yet to receive Royal Assent; and therefore, it is not (as yet) enshrined in law.

But we have passed the date from which the changes were meant to be given effect, i.e. from 6 April 2023.

The Finance Bill is not expected to be given Royal Assent (and therefore the new SEIS changes passed into law) until July 2023 (check progress here)...

What is HMRC's approach to this time difference in the SEIS rule changes?

Between 6 April 2023 and the date that the Finance Bill is given Royal Assent, we are in a state of hiatus.

HMRC has confirmed that they will honour the changes as if the rules applied from 6 April 2023.

However, they will be unable to issue any formal documentation that reflects the new rules until Royal Assent i.e. until July 2023.

This means that HMRC will be unable to:

  1. Grant advance assurance for amounts over £150,000 AND/OR
  2. Issue SEIS3 compliance statements for amounts over £150,000 for the company and £100,000 for any individual

until the new rules pass into law (expected in July 2023).

We should not lose sight of the risk that the new rules might never pass into law (although this risk is low).

So what do startups do now?

The situation is far from ideal, however, founders should consider the following actions:

  1. If more than £150k in investment is required (and you are anticipating say £250k under SEIS under the new limits), apply for both SEIS + EIS on the advance assurance application to allow HMRC to process it (as if you apply solely for SEIS and specify a £250k funding target then HMRC will have no choice but to reject it). It should end up being £250,000 fully covered by SEIS once you get around to processing the paperwork post July (HMRC should not have a problem with you dropping the EIS amount in this case and will understand).
  2. Do NOT issue shares under EIS in the meantime, if you hope to squeeze more into the SEIS relief. As once a single share is issued under EIS, then no SEIS relief is available.
  3. Hold back on sending any completed SEIS1 compliance statements for more than £150k to HMRC until after Royal Assent, i.e. in July.
  4. Prepare your investors for a (likely) delay in receiving their SEIS3 tax certificates. As post the July Royal Assent date, HMRC will likely have a huge backlog of applications to process!

Hope this helps. Reach out for help.