Key changes to be announced to Seen Enterprise Investment Scheme (SEIS)
Maximum a company can raise under SEIS has increased from £150,000 to £250,000.
Companies can now raise SEIS money at a later stage, as long as gross assets are below £350,000 when a company is less than three years old.
Individual investors’ annual allowance doubles from £100,000 to £200,000.
Nicholas Hyett, Investment Analyst, Wealth Club said: “When it launched in 2012, the SEIS scheme allowed companies to raise a maximum of £150,000 and investors were able to invest up to £100,000 each year. It has done a fantastic job of matching up entrepreneurs with early-stage investors, but over the decade since its launch inflation slowly eroded the power of the scheme.
This left companies missing out on crucial additional early-stage funding. In real terms, the SEIS funding available to businesses was as much as £42,000 less than when the scheme was founded – essentially depriving small companies of the equivalent of one full-time employee. Today the Chancellor has reversed that trend, not only restoring the scheme to where it was in 2012 but even adding a modest extension in real terms. This will be a significant boost for the very youngest companies in the UK.
The relatively low maximum investment, at £150,000 per company, has prevented many managers from operating in the SEIS space – because the fees earned on a successful investment didn’t justify the admin and due diligence involved. We would hope that the increase of the limit not only increases the resources existing managers have to offer small businesses but encourages more to enter the market. Pair that with the increase in how much an individual investor can put into the scheme and the future for the UK’s very smallest businesses looks bright.”
Key stats on SEIS:
- If this had been increased in line with inflation they would now be able to raise around £192,000. That is £42,000 more, equivalent to at least one additional full-time employee on an average wage
- In 2020 to 2021, 2,065 companies raised a total of £175 million of funds under the SEIS scheme. Funding has slightly increased by 4% from 2019 to 2020 when 2,070 companies raised £169 million.
- Around 1,660 of the companies were raising funds under the SEIS scheme for the first time in 2020 to 2021, representing £154 million of investment.
- In 2020 to 2021, companies from the Information and Communication sector accounted for £72 million (41% of all SEIS investment).
- Companies registered in London and the South East accounted for the largest proportion of investment, raising £120 million (68% of SEIS investment) in 2020 to 2021.
SEIS success stories
- Cognism has developed a lead generation software that finds and ranks sales opportunities and provides contact information and a timeline of key company events. The business first raised SEIS funding in 2016, and recently raised $87.5 million from a consortium of global venture capital investors to support its rapid growth. Cognisim is one of the 10 fastest growing businesses in the UK according to Deloitte Fast 50 2021, with revenues growing by over 4,300% in four years.
- Transcend Packaging manufactures packaging products for the food industry, such as paper straws and folding cartons. It is perhaps most well known as the paper straw supplier to McDonalds. The business also adapted quickly during covid to manufacture paper-based sustainable PPE face visors. It first raised SEIS funding in 2017, the business has now raised more than £17 million from investors.
- Humanising Autonomy, a predictive AI company that aims to improve the way vehicles and systems interact with people in any environment. It attracted SEIS funding in April 2018, and has since raised two significant funding rounds,$5 million in 2019, and $11 million in October 2021. The business has secured paid trials and partnerships with companies such as Airbus, Daimler, Arriva, Siemens and Nissan.
What kind of companies will qualify for SEIS?
- To be SEIS-qualifying, a firm must be small and unquoted, have traded for a maximum of 3 years, have gross assets of less than £350,000 and fewer than 25 employees at the time of investment.
- As with EIS, some companies and sectors are excluded, including those dealing in land, commodities or shares.
- Although the list of exclusions is quite long, it does leave huge scope for investment. Over the past few years, app development, music and film production companies have been popular investments.
How can investors access SEIS?
- There are two ways to invest in SEIS: by investing directly in a single SEIS-qualifying company or by investing through a fund or portfolio. Both options could have a place in an experienced investor’s portfolio.
- Investing in a single company gives an investor greater visibility and control, but also carries greater risks because the success of your investment depends solely on the fortune of that company.
- Investing in a portfolio or fund affords you some diversification, usually within an area or sector. It also gives you the comfort a professional manager is researching the opportunities and making the investment decisions for you.
What are the tax breaks?
- Up to 50% income tax relief
- Tax-free growth
- Up to 50% Capital Gains reinvestment relief
- Inheritance tax relief
- Loss Relief