SEIS and EIS Tax Relief Explained with a little help from Star Wars…

SEIS and EIS are the given acronyms for the generous tax breaks the UK government offers to investors in startup companies. (Seed) Enterprise Investment Scheme. The company must be UK registered and meet certain eligibility requirements. Eligibility is a great way to incentivize investors because it reduces their risk. Dramatically.

As it’s May the 4th. As in May the Fourth be with you. As in Star Wars Day. I thought it appropriate to share an article I wrote explaining the benefits of SEIS and EIS with a few lame Star Wars puns thrown in. You know, to keep it, well, Light.

**This article is relevant for companies registered in the UK only. However, companies registered outside of the UK may find it useful as there may be similar tax breaks offered by their local government.**

What are SEIS & EIS Tax breaks?

Investing in startup companies is generally much riskier than buying shares in much larger more established companies, although the returns are potentially much larger. As a means of offsetting this risk for investors and thereby incentivising them to invest, the UK government offers two attractive tax breaks known as SEIS and EIS (the Seed Enterprise Investment Scheme; and its parent the Enterprise Investment Scheme).

The tax breaks are very generous to investors and have been instrumental in helping the startup industry grow in the UK. As a result, investors now place high value on companies that have qualified for SEIS & EIS.

Because of this, we recommend that all UK companies raising through our platform seek ‘advanced assurance’ for SEIS/EIS if they think they will qualify. As a general rule, if you consider your company early stage then you probably qualify for both, or at least EIS.

What’s SEIS?

HMRC gives the following overview:

“…[SEIS] is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies.”

Startups who qualify will be eligible to offer up to £150,000 in SEIS shares to investors.

What are the principal benefits for investors?

  • SEIS is incredibly generous and investors will get 50% tax relief per tax year on investments up to £100,000. (Relief is given each year, but the shares must be held for at least 3 years)
  • Investors will also get Capital gains exemption on the disposal of assets
  • There is a ‘carry back’ facility which allows investors to treat shares as if they were acquired in the previous tax year. Hence the relief can be claimed for the tax year before the investment.

Example:

Angel Investor Skywalker invests £100,000 into ‘Force for Good’, a ground-breaking social enterprise startup which qualifies for SEIS. For the given tax year, Skywalker has a tax liability of £50,000. Because of his SEIS shares he gets 50% of the value of his investment in relief, so £50,000.

This means he pays £0 in tax rather than the £50,000 he owes in tax. This situation is irrespective of how well the company does.

If the company does well, Skywalker would also qualify for exemption from Capital Gains tax (up to £100,000) on the profit provided it is reinvested.

If the company folds, Skywalker will still receive his £50,000 in tax relief meaning only half his initial investment of £100,000 is at risk. When the company folds, he will also be given loss relief of 45% of the ‘at risk’ capital. 45% of £50,000 is £22,500.

So if the company folds, Skywalker will only have lost £27,500 even though he invested £100,000. That’s relief of 72.5%!
SEIS

Does your company qualify?

N.B. These tax breaks are only available to UK based companies; investors do not need to be UK resident but must have some UK tax liability against which to set the tax relief.

For a company to qualify for the SEIS scheme it must meet a number of qualification tests. The list below is not comprehensive as the rules in place are often quite detailed and nuanced, but it gives a helpful, broad picture:

  • Permanent UK Base- your company must have a permanent UK office or the owner must be a UK resident. This must remain the case for three years from when SEIS shares are issued.
  • Your company must not be listed on the stock exchange at the time the SEIS shares are issued.
  • Your company must have fewer than 25 full-time employees at the time the SEIS shares are issued.
  • The gross assets must not exceed £200k at the time the SEIS shares are issued.
  • Your company must be early stage in that it must not be continuing a trade that is more than two years old at the time the SEIS shares are issued.
  • Your company must not have raised money through EIS or VCT schemes in the three years prior to the SEIS share issue.
  • The funds raised must be spent within three years.
  • Your company must be independent i.e. it must not be controlled by any other company or anyone associated with that company.
  • Your company must not be a member of a partnership

To get formal approval of SEIS eligibility you need to fill out an SEIS1 form and send it to HMRC. Download the form and the notes here.

EIS

What’s EIS?

EIS is the parent of SEIS. The principle is the same – to encourage investors to invest in early stage companies by offering them a generous tax break based on the sum they invest.

When the scheme was launched in 1993 the then Chief Secretary to the Treasury, Michael Portillo, said;

“The purpose of Enterprise Investment Schemes is to recognise that unquoted trading companies can often face considerable difficulties in realising relatively small amounts of share capital. The new scheme is intended to provide a well-targeted means for some of those problems to be overcome.”

EIS is less generous in terms of relief but it is easier for companies to qualify for and there is a larger quota available for eligible companies to offer investors. 

Startups are able to offer up to £2,000,000 in EIS shares.

What are the benefits for investors?

  • Can invest up to £1,000,000 a year in EIS shares.
  • Investors will get 30% tax relief per tax year
  • Any gain is exempt from Capital Gains tax provided the shares have been held for at least 3 years.
  • Loss relief via tax liability upon disposal of shares for a loss
  • Capital gains tax on assets can be deferred if the gain is re-invested in EIS shares
  • ‘Carry back’ facility so the shares can act as tax relief for the previous tax year

Example:

Angel Investor Vader invests £100,000 into ‘Death Star Inc’, a highly disruptive Fintech startup which qualifies for EIS. 

For the given tax year, Vader has a tax liability of £50,000. Because of his EIS shares he gets 30% of the value of his investment in relief, so £30,000. This means he pays £20,000 in tax rather than the £50,000 he owes in tax. This situation is irrespective of how well the company does.

If the company folds, Vader will still receive his £30,000 in tax relief meaning only £70,000 of his initial investment is at risk. When the company folds, he will also be given loss relief of 45% of the ‘at risk’ capital. 45% of £70,000 is £31,500.

So if the company folds, Vader will only have lost £38,500 even though he invested £100,000. That’s relief of 61.5%!

Does your company qualify?

To qualify for EIS your company must satisfy the following criteria:

  • Permanent UK Base- your company must have a permanent UK office or the owner must be a UK resident. This must remain the case for three years from when EIS shares are issued.
  • Your company must not be listed on the stock exchange at the time the EIS shares are issued.
  • Your company must have fewer than 250 full-time employees at the time the EIS shares are issued.
  • The gross assets must not exceed £15 million at the time the EIS shares are issued.
  • The funds raised must be spent within three years.
  • Your company must be independent i.e. it must not be controlled by any other company or anyone associated with that company.
  • Your company must not be a member of a partnership

The full criteria and guidance on how to apply for advanced assurance can be found here on the HMRC website here.

SEIS-EIS

Summary:

If you’re an early stage company registered in the UK and you’re raising money, you really should get advanced assurance for both SEIS and EIS. It can seem a little complicated, but in effect, all you need to do is submit the correct forms to HMRC and let them work out if you qualify.

You can be sure that all your competitors will be doing it – investors are far more likely to invest in an early stage company if they have the guaranteed risk mitigation that SEIS and EIS offer.

This article was originally written by Oliver Jones for Angel Investment Network‘s Learn centre. You can view the original and other similar articles covering all topics related to startup fundraising and investment here.

What’s the outlook for mobile app startups and investors in 2017?

“There’s an app for that”, or some variant of the phrase, is now one of the most common responses to anyone raising a complaint or bemoaning a problem, however small.

Rise and fall of man

The extreme sense of entitlement coupled with the profound idleness that characterises our age has created a market for apps which manage or assist with our dry-cleaning, our sex life, our tampon subscription, our polyphasic sleep-mapping, our pets’ bowel movements…I wouldn’t be surprised if somewhere in the murky depths of the App Store there’s an app for communing with the dead – or perhaps I’ve just been watching too much Black Mirror.

The last decade has seen the rapid and unstoppable emergence of the mobile application. And it’s not just quick-on-the-uptake millennials who are enamoured with this new way of being, by now nearly everyone is a smartphone-toting app addict.

But is this set to last? And what’s the outlook for mobile app entrepreneurs and investors?

The general consensus from anecdotal reports is that mobile app companies are finding it more difficult to raise finance. This requires some unpacking. Thanks to a report from our friends at Beauhurst, who track the funds raised by thousands of seed, venture and growth-stage companies, we can see that the amount invested in mobile apps in the UK reached its highest ever level of just over £560m in 2016 (that’s up from £67m in 2011 and circa £275m in 2015).

Mobile app deal numbers and amount invested 2011-2016
Mobile app deal numbers and amount invested 2011-2016

So what’s the problem? Clearly, there are enormous (and increasing) amounts of capital still being ploughed into the app industry by investors. But hold on, there’s a nuance to this.

The crucial change which gives credence to the consensus is that the stage of the app companies raising money has changed. In 2013, 70% of app companies who raised money were seed stage, but by 2016 that number had dropped to 62% with more investors opting for the more proven venture and growth-stage companies.

So from this, we can see that for early stage app companies the prospect of raising finance has indeed become marginally harder. However, the amounts being invested into the sector are still growing at an impressive rate so for apps good enough to compete, there’s still a world of opportunity.

With thanks to Beauhurst for permission to use their data. You can read their article here

Business Funding Show Event – Canary Wharf 23rd February

Angel Investment Network will once again be joining a host of other companies from the startup investment space at the latest Business Funding Show on 23rd February near Canary Wharf tube station.

PICTURE with Logos

Attendees will be given the opportunity to:

– Meet famous entrepreneurs like Mark Wright (BBC Apprentice Winner)
– Learn from Angel Investors such as Mike Greene (C4 Secret Millionaire)
– Meet a range of leading financial institutions
– Get free 1-2-1 with Top Investors & VCs
– Attend talks from industry experts

Wondering what it’s all about? Check out what it was like last year in the video below:
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If I were an SME today and I’d just started a business or I was growing a business in my early days, I’d be here at the Show, because I want to learn more and more about all the different forms of funding available, meet potential funders every year, meet with fellow entrepreneurs and learn from them, learn from the speakers, who are very experienced.Lord Bilimoria of Cobra Beer

Picture Richard

My mission is to help entrepreneurs to set-up and grow their business. So, the Business Funding Show is a perfect event for this, as it’s all about helping entrepreneurs to learn how to get money and grow fast.Richard Reed of Innocent Drinks

Our very own Xavier Ballester will also be giving a workshop on raising money through angel investors!

You can get tickets here.

Latest Success Story: Repairly get their investment fix

Repairly is one of the latest company’s to come off Angel Investment Network’s funding line. The company is now gunning to fix the technology repair industry having closed a £265,000 seed round.

Repairly is disrupting the billion-dollar technology repair services industry by offering collection and delivery on broken tech. Their mission is to make it ridiculously simple to get your phone, tablet or laptop repaired.

Repairly 3

The introduction of Repairly means that people no longer have to go to the expensive Apple Store or inconvenient corner shops – customers don’t even have to leave their desk. Repairly collect, repair and return within an average of 2 hours and 6 minutes.

Fraser Williams, co-founder and CEO at Repairly, says: “Over 32,000 phones get broken everyday in the UK alone. People don’t know where to turn when this happens. Repairly turns people’s negative experience into a positive one, and if you can find delight in a phone repair, you can find it anywhere.”

Richard Edwards, the other co-founder, says: “We ensure busy people with broken technology are back up and running as soon as possible…We saw how much technology had advanced but the support for that technology was lagging behind. People were waiting for up to 2 weeks without their phone. That seems crazy in today’s technology-reliant society.”

The business was started in 2015 after Fraser Williams dropped out of University. Richard Edwards was an early team member of the online cleaning marketplace, Hassle.com, which was acquired by Rocket Internet in July 2015.

Repairly is a graduate of the UK accelerator programme Virgin Media Techstars. The seed investment came from well-reputed investors including someone whose previous company, AddLive, was acquired by Snapchat, Richard Fearn, Daniel Murray (CEO, Grabble), Richard Pleeth (Ex-Google).

Richard Fearn comments: “Repairly’s business is growing quickly into a large market, with strong unit economics and great customer reviews.”

Exciting news for Repairly; and everyone prone to breaking their smartphone!

Angel Investment vs Venture Capital – Which would you choose?

VC's vs Angels
This morning I read a great post by Venture Spring. Venture Spring is a hugely well respected ‘venture development’ company which “helps Fortune 500 companies innovate like startups” according to their company mantra. The article is about the differences between venture capital funding and funding from angel investors.

Startups are often all too eager to take one option over the other based on their own preconceptions. It’s important to realise that one may be more suited to one type of startup over another (and vice versa. So, understanding the points of difference could be crucial to the way in which you approach your fundraise; and how your company ends up being run down the line. So it’ll be worth your while familiarising yourself with the key points…

You can read the full article on their site here. (It’s a 5-10 min read).

Or, I’ve summarised the key differences for you here and (added in a few that they missed!):

Angel Investors:
– are private individuals investing their own money
– can make quick decisions regarding investment
– can be flexible in the amount they invest
– can provide expertise, contacts and support as well as capital
– can feel personally attached to your business
– can be as hands-off or hands-on as you require
– can qualify for tax breaks like SEIS and EIS
– do not have to be given board positions

Venture Capital Firms:
– are whole companies that invest in startups
– are run by professional investors investing money from corporations, individuals, funds and foundations
– take board positions and have a strong say in how the company is managed and grown going forward
– invest much larger amounts than angel investors
– do not usually invest at seed stage
– generally invest not less than £1million
– take a longer time to make investment decisions and broker deals

What’s your take on the issue? Do you have any experiences you’d like to share? Comment below or hit me up on Twitter

How a good first impression can make you more money and your users happier


This week I wanted to share with you a great little article about user onboarding. While it’s primarily useful for web-based companies, there’s an important lesson in there for anyone who cares about driving success.

In brief, the article demonstrates that the most effective way to increase user retention, is to focus on onboarding – that first day or week in which a user is experiencing your product for the first time. By focussing on this ‘handshake’ moment not only will you retain a higher percentage of users/customers in that first day/week, but there will be a knock-on effect from this in the subsequent days/weeks; with the result that your churn will be significantly reduced across the entire user lifecycle and your revenues will have increased accordingly and significantly. Even though you only made changes at the start of the lifecyle.

Imagine two scenarios in which you are entering a hotel…

In the first, you go through the swivel doors into a silent and dimly-lit atrium across which you can just make out a receptionist slumped behind the desk. You lug your bags over to the desk gasping audibly from the effort. The receptionist does not even look up etc…You get the picture.

In the second, you go through the swivel doors into a dazzling atrium buzzing with fellow guests cheerfully chatting away whilst relaxing in comfy chairs as handsome waiters and waitresses serve them Prosecco and canapes; and have their luggage taken up to their rooms.

Obviously the second scenario is intended to create a ‘WOW’ factor. This ‘WOW’ factor is important because it creates a perspective in the mind of the customer which will set the tone for how they perceive the whole experience. In other words, the happiness created at the start will mean that the customer is more likely to use more of the various facilities and services, tip more and return in future.

So whatever business you’re in, remember you never get a second chance at a first impression; and the first impression is most important one you can make.

Here’s the full article by the Founder of Appcues: Why User Onboarding is the Most Important Part of the Customer Journey

Infographic – 8 Startup Pivots That Changed The World

Here are 8 companies that successfully switched focus and went on to become some of the most powerful operations in the world!

Can you think of any other famous companies that pivoted and ended up doing something very different from their original plan?

8 CEOs Who Became Self-Made Millionaires Before Turning 30

Here is some inspiration for all you fellow entrepreneurs and startups founders out there.  This infographic shows eight CEOs who made their fortunes before reaching the ripe old age of 30.

Hopefully it’s not too long until we all join them!

Infographic – 20 Motivational Quotes from Legendary Entrepreneurs, Leaders and Visionaries

This infographic gives 20 quick shots of inspiration and motivation:

Source:  http://successstory.com/inspiration/famous-motivational-quotes