Orrick's Founder Series offers monthly top tips for UK startups on key considerations at each stage of their lifecycle, from incorporating a company through to possible exit strategies. The Series is written by members of our market-leading London Technology Companies Group (TCG), with valued contributions from practitioners across Orrick’s recognised practice areas. Our Band 1-ranked London TCG team successfully completed over 350 financings and tech M&A transactions in 2023 & 2024 totaling $5B+ and has dominated the European venture capital tech market for over nine years (Pitchbook). View previous series instalments here.
For UK tech startups, securing funding can be crucial for early-stage growth and development. Two UK government-backed schemes – the Seed Enterprise Investment Scheme (“SEIS”) and the Enterprise Investment Scheme (“EIS”) – offer UK tax resident individual investors generous tax incentives, making it easier for you to raise the capital you need to grow. Here’s an overview highlighting some key points you need to know.
Seed Enterprise Investment Scheme (SEIS)
The SEIS is designed for early-stage companies looking to attract initial investors.
Investor benefits:
- Up to 50% income tax relief for UK tax resident individual investors
- Capital gains tax exemption on share sales after 3 years
Eligibility: To qualify for SEIS, various technical requirements must be satisfied, including that the company must have:
- been trading for less than three years
- fewer than 25 employees
- gross assets of no more than £350,000
- a qualifying trade – conducted on a commercial basis with a view to profit, and not involving prohibited activities such as banking or dealing in financial instruments
Funding limit: The company can raise up to £250,000.
Enterprise Investment Scheme (EIS)
This scheme supports more established companies in raising funds to expand and innovate. It’s aimed at companies that are past the initial startup phase but still need capital to scale.
Investor benefits:
- Up to 30% income tax relief for UK tax resident individual investors
- Capital gains tax exemption on share sales after 3 years
Eligibility: To qualify for EIS, various technical requirements must be satisfied, including that the company must have:
- been trading for less than seven years
- fewer than 250 employees
- gross assets of no more than £15 million before the investment (and no more than £16 million after)
- a qualifying trade (same considerations as SEIS)
Funding limit: The company can raise up to £5 million per year, with a £12 million lifetime cap.
Why Consider SEIS and EIS?
- Attract investment: SEIS and EIS can make your company more appealing to investors by balancing their financial risk through tax incentives. This can be an important factor in attracting the capital you need.
- Fuel growth: The funds raised can be used to accelerate growth and development of the company’s business.
- Competitive edge: Offering tax-efficient investment opportunities can give your company a competitive edge in a crowded market, helping you stand out to potential investors.
SEIS/EIS Extension to 2035
The SEIS and EIS, which were originally due to expire in April 2025, have recently been extended until April 2035. This extension provides companies and investors with a longer window to benefit from these schemes in their fundraising activities. The Government’s commitment to SEIS and EIS underscores their importance in fostering entrepreneurship and encouraging innovation across the UK.
SEIS and EIS Treatment in a US ‘Flip’ Transaction
A US ‘flip’ refers to the insertion of a US holding company through a share-for-share exchange, whereby the shares in an existing UK company (“UKCo”) are transferred to a new US company (“USCo”) in exchange for shares issued by the USCo. This structure is often needed in order to raise capital from US-based venture funds.
If the UKCo already has SEIS or EIS shareholders, it may be possible to have continuity of that treatment in the shares issued by the USCo – provided the flip is structured correctly and certain technical requirements are met, including that as part of this ‘continuity’ analysis, HMRC expects the USCo to maintain a UK permanent establishment. We can advise on the practical steps US companies should take to meet this requirement.
Non-UK Incorporated Companies and SEIS/EIS in Relation to New Fundraising (Outside of a ‘Flip’ Scenario)
A non-UK incorporated company can issue SEIS or EIS qualifying shares provided that the company has a UK permanent establishment (and assuming that the various other technical requirements are met). Simply having a UK subsidiary is not sufficient for these purposes.
Other Key Considerations
- Each company’s eligibility needs to be assessed carefully to confirm whether SEIS, EIS or both can apply.
- Where it is intended that both SEIS and EIS schemes are to be used, the SEIS shares must be issued first (and dated earlier than any EIS share issuance).
- It is recommended to seek advance assurance from HMRC to seek comfort regarding eligibility before raising funds.
Next Steps
With SEIS and EIS extended to 2035, there’s never been a better time to incorporate these schemes into your fundraising strategy. If you are considering using SEIS or EIS for your company, it is key to ensure you meet the eligibility criteria. Our team can help you navigate through the issues, both in connection with the establishment of SEIS and EIS, and subsequently in any ‘flip’ transaction or other restructuring.
