Many startups do not know that SEIS Advance Assurance requirements have changed.
Are you one of them?
The sooner you comply the sooner you can secure your investors.
What is SEIS Advance Assurance?
SEIS is designed to help your company raise money when it’s starting to trade. It does this by offering tax reliefs to individual investors who buy new shares in your company. Since SEIS was launched in 2012-13, 6,665 individual companies have received investment through the scheme and £621 million in investments has been raised.
It is a very successful scheme because this binding HMRC decision enables you to check if your share issue will meet the SEIS qualifying conditions. Thus, it attracts investors and facilitates next step.
What is the purpose of this change?
The time to get advance assurance is approximately 4 weeks but it could be 8 weeks around key tax deadlines or depending on your business structure.
Unfortunately, more than a third of applications were not followed by actual investment.
Thus, to reduce time spent and use resources more efficiently, HMRC decided to stop granting SEIS Advance Assurance to speculative applications. Companies are now required to demonstrate investor interest.
Under previous rules, you could apply months before your funding rounds.
From 2 January 2018, HMRC will only review the application if the SEIS advance assurance application mention names and addresses of your expected investors. Otherwise the application will be rejected without being considered. Thus, you should approach potential investors before applying to determine the likelihood you will attract investors.
What is the implications of this change for startups?
Before the 2018 change, most investors were only investing once companies were granted the advance assurance. They wanted to know they were eligible for the tax relief.
Now, startup should know who their investors will be before applying but investor will commit to investing only if they know they are eligible. It is a bit of a catch-22. Ideally, startup should onboard enough investors to be able to put names on their application form.
Moreover, this change is not well-known so a lot of unaware startups might apply without their investors details and see their application rejected. This is time consuming.
SEIS advance assurance is an important tool for your funding rounds so don’t run the risk your investors may not benefit from it anymore because of this requirement change.
I hope this helps! If you still have questions about SEIS, check our FAQs in here and if you’re unsure about the legal advice that you or your startup require, we offer a Free Legal Session where we’ll talk you through your needs and answer the questions you may have. Book a session here.