How are the Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) helpful after register a business in UK?


In case if you’re wondering about how to establish a company in UK when you don’t have sufficient financial aid, then there are certain schemes that help you achieve your aim. The scheme of enterprise investment (EIS), seed enterprise investment scheme (SEIS) and the venture capital trusts (VCTs) are designed in order to help the unquoted companies of trade to raise finance, without which it may be difficult in starting a company UK effectively. SEIS is a scheme which is like the EIS scheme but in this case, the rewards of investment are given for the small and start-up unquoted companies of trade with a reducer of tax being more generous, whereas the venture capital trusts (VCTs) are the listed companies that make an investment in the unquoted companies of trade and fulfill some specific conditions. The conditions for relief and the income tax relief will be discussed in detailed in the blog for both the cases of SEIS and VCTs. So, by getting through this blog, you will be able to answer the question of, how to establish a company in UK effectively, and also will be familiarized with the financial schemes that provide as a source of aid for you when you start a new company or run an ongoing company.

Seed Enterprise Investment Scheme (SEIS)

Relief Conditions

The individuals who make a subscription for the shares of SEIS have an entitlement of similar relief of income tax (although at a rate which is more generous) as the subscribers for the shares of EIS but the conditions that should be satisfied by the investor and the company after starting a company UK are slightly different.

Who is an investor in this scenario?

The investor can be a director but he should not be the company’s employee. This condition must be fulfilled during the time period commencing with the issuance of shares and the third anniversary of the date on which the issuance of shares took place.

The investor should not have a connection with the company. The occurrence of connection can be noted widely through employment or having an ownership of more than 30% of the ordinary issued capital of share, voting power or issued share capital of the subsidiary or the company. The satisfaction of this condition should be ensured during the period commencing with the company’s incorporation and the third anniversary of the date on which the issuance of shares was done.

Which conditions should be satisfied by the company?

In order to acquire the relief, the following conditions must be met by the company that have register a business in UK:

  • The total value of the gross assets of the company should not be more than £200,000 instantly before the shares are issued.
  • The company must be unquoted (such as not listed on a recognized stock exchange), established permanently in the UK, and should fulfill the requirement of financial health of not being in some difficulty.
  • The full time employees of the company should be less than 25 on the date of the issuance of share.
  • The company should not have raised more than £150,000 from the investments of SEIS in a period of three years.
  • The utilization of the funds raised should be done by the company, or a 90% subsidiary, in order to carry out a new qualifying trade. The qualifying trade means the same thing as in the case of EIS and the dealing in activities of land and property, provision of legal or accountancy services and financial activities are excluded from it. A new qualifying trade is defined as the one that has been carried on for less than two years at the issuance date of the shares.
  • The company should not have carried on some other trade prior to this new trade.
  • The utilization of funds must be done within the duration of three years since the shares got issued.

Requirements for the Shares

The requirements for the shares are the same as in the case of investments of enterprise investment scheme (EIS), which means that the investor should have the subscription in cash for the new ordinary shares for genuine commercial purposes, despite the fact that the shares with limited preferential rights to dividends can still be considered as the qualifying shares.

Relief from Income Tax

Reducer of Tax

The individuals can make a claim of a tax reducer of the lower of:

  • The tax liability of the individual for the year.
  • 50% of the amount whose subscription has been done for the qualifying investments.

A claim for the relief of SEIS in respect of the issued shares by a company in a year of tax may by the fifth anniversary of the normal self-assessment filing date for the year of tax (which is by January 31st 2020 for an investment that was made in the years of 2013 or 2014).

Relief Limit

The yearly maximum investments of SEIS which qualify for the relief from income tax is equal to £100,000, which means that the maximum reducer of tax is £50,000.it is possible that the investor may make a claim to have the treatment of shares done as issued in the preceding year of tax. During the process of carrying back the relief, the relief given in the preceding year should not be more than the overall limit of SEIS for that particular year.

Relief Withdrawal

As far as the EIS is considered, the investor must hold the shares for a duration of at least three years if there is no intention to withdraw the reliefs of income tax. In the case where the disposal is a bargain at arm’s length, the withdrawn amount will usually be 50% of the acquired amount for the shares (as for the relief of EIS, it will be less if full relief was not given as the tax liability of the taxpayer was not more than the amount subscribed for). On the contrary, where the disposal is not at arm’s length, then the withdrawal of the entire relief takes place.

It should be remembered that the investments in EIS and SEIS are high risk investments, irrespective of the fact that they carry attractive reliefs for tax.

Reliefs of the Capital Gains Tax (CGT)

In the case where the shares qualify for the relief from income tax according to the SEIS, there also exist special rules that are applicable to those shares for the purposes of capital gain in a similar manner as for the shares of EIS. The individuals are able to make a claim of an exemption from the capital gains on the gains made in the years of 2013 or 2014 if a subscription is made that year in the shares of SEIS.

Venture Capital Trusts (VCTs)

The venture capital trusts (VCTs) are the listed companies that make investment in the unquoted companies of trade and fulfill some specific conditions.

Relief Conditions

The individuals who make a subscription for the shares of VCT hold an entitlement to the relief of both the capital gains tax and the income tax where some specific conditions are met.

Who is an investor in this scenario?

The VCT scheme is different from the EIS since the individual investor makes an investment directly in a quoted VCT company that itself makes an investment in the higher risk unquoted companies. Hence, the risk is spread by the investor.

Which conditions should be satisfied by the company?

A venture capital trust is considered to be a company, whose shares are admitted to trading in a market which is a regulated European one that makes an investment in the small unquoted EIS-type of companies.

In order to get an approval from the HMRC, the VCT should meet and continue to meet the conditions as mentioned below:

  • Its acquiring of income is done mainly and entirely from the securities or shares
  • At least 70% of its holdings should be in the ordinary shares and a single holding cannot amount to more than 15% of its net investments
  • At least 70% of the investments are made in the shares in the holdings that qualify. In a broad sense, the qualifying holdings are the holdings in the unquoted companies that carry on qualifying trades in the United Kingdom
  • It has not kept more than 15% of the income from the securities and shares which means that it should distribute 85% of its income from the securities and the shares

The companies that have completed the company name registration UK process and in which the investments made, should have less than 250 full-time employees or equivalents on the date the share gets issued.

The money which is invested in the company by the Venture capital trusts should be used entirely for the fulfilment of the purposes of the qualifying trade of the company within the duration of two years.

The gross assets of the company whose investment is done should not be more than £15m before nor £16m after the investment. The company should not have raised an amount of more than £5m in the schemes of venture capital in the 12 months terminating on the date on which the investment was made.

The companies in which the investment is being made, should be established permanently in the Great Britain, at all times since the issuance of the shares of VCT till the time in question.

The companies in which the investment is made should fulfill all the requirements of financial health when the issuance of shares takes place.

Tax Relief

An individual who makes an investment in a VCT acquires the benefits of tax on maximum qualifying investment of an amount equivalent to £200,000. Such benefits of tax are mentioned below:

  • The acquired benefits are considered to be an income free from tax
  • A reducer of tax of the lower of 30% of the amount whose investment is made and the income tax liability of the individual for the year
  • Capital gains acquired when the shares are sold out in the VCT are not included in the capital gains tax (CGT) and the losses are not taken to be allowable

Relief Withdrawal

In case if the shares in the venture capital trusts (VCTs) are made subject to disposal within the period of five years of issuance, then the following consequences can be seen:

  • If the disposal of shares takes place according to the bargain which is made at an arm’s length, then the withdrawal of the reduction of tax takes place, up to the amount equivalent to the proceeds of the disposal multiplied by 30%.
  • If the disposal of shares does not take place according to the bargain made at an arm’s length, then the withdrawal of the reduction of tax takes place

In case if the approval of the venture capital trust (VCT) is withdrawn within the period of five years of the issuance, then in such a case, any reduction of tax given is made subject to a withdrawal.

It should be kept in mind that there is no requirement of a minimum holding period for the benefits of the tax-free dividends and the exemption of the capital gains tax (CGT).

Comments: Leave Comment

* The email will not be published on the website.