Investment and investor requirements
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Investment requirements
Shares must be paid up in full, and in cash, when they are issued.
Please note: one of the most common reasons for investments failing to
qualify for relief under EIS, which may also apply to SEIS, is that shares
are issued to investors without the company having received payment for
them. This sometimes happens when a new company is registered at Companies’ House
and shares are issued to members as part of the registration process,
but the company takes some time to set up a bank account and the shares
are not paid for until that has happened.
HMRC would advise companies and
investors to ensure that any shares on which it is intended SEIS
relief will be claimed, are not issued during the company registration
process
but are issued only at a later date when the company is able to receive
payment for them.
Shares must be full-risk ordinary shares, and may not be redeemable or
carry preferential rights to the company’s assets in the event of
a winding up. Shares may carry limited preferential rights to dividends,
but may not include rights where either:
- The rights attaching to the share include scope for the
amount of the dividend to be varied based on a decision taken by the
company, the shareholder or any other person. (Please note: this exclusion
covers only those shares which carry preferential rights and does
not therefore prevent the voting of dividends in respect of non-preferential
shares, nor does it prevent shareholders from choosing to waive a
dividend payment should they wish to do so.)
-
The right to receive dividends is 'cumulative' – that
is, where a dividend which has become payable is not in fact paid,
the company is obliged to pay it a later time, normally once funds
become available.
There must be no arrangements to protect the investor from the normal
risks associated with investing in shares, and no arrangements at the
time of investment for the shares to be sold at the end of the relevant
period.
There must be no arrangements (either at time of issue of the shares
or later) to structure a company’s activities with the main purpose
of allowing a party other than the company to benefit from the tax
advantaged finance which the scheme is intended to incentivise; or
where those activities have no commercial purpose other than to generate
tax relief.
Find out more in HMRC's
Venture Capital Schemes manual
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Investor requirements
As an investor you may be eligible for tax relief providing:
- You have subscribed for shares which have been issued to
you and which at the time of issue were fully paid for. You may subscribe
via a nominee.
-
You do not have a 'substantial interest' in the company, at any
time from date of incorporation of the company to the third anniversary
of the date of issue of the shares. 'Substantial interest' is defined
as owning more than 30 per cent of the company’s issued share
capital, or of its voting rights, or of the rights to its assets in
a winding up. Shareholdings of associates are taken into account in
arriving at the 30 per cent figure. 'Associates' include business
partners, trustees of any settlement of which the investor is a settlor
or beneficiary, and relatives. Relatives for this purpose are spouses
and civil partners, parents and grandparents, children and grandchildren.
Brothers and sisters are not counted as associates for SEIS purposes.
- You are not employed by the company at any time during the period
from date of issue of the shares, to the third anniversary of that
date. For this purpose, you are not treated as employed by the company
if you are a director of the company.
- The shares may not be acquired using a loan made available on terms which would not have applied other than in connection with the acquisition of the shares in question.
- The shares must not be issued under any 'reciprocal' arrangements, where company owners agree to invest in each other's companies in order to obtain tax relief.
Find out more in HMRC's Venture
Capital Schemes manual
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When relief will be withdrawn or reduced
'Tax relief' in this section means both Income Tax relief and capital
gains re-investment relief.
HMRC will withdraw tax relief if, at any time during the three years
from date of issue of the shares if:
- you become employed by the company without being a director
of the company
-
your holding in the company becomes a 'substantial interest' (see
Investor requirements above)
-
the company loses its qualifying status
Tax relief will be either withdrawn or reduced if at any time during
the three years from date of issue of the shares:
- You dispose of any of the shares (other than to a spouse or civil
partner – in those circumstances the shares are treated as though
the spouse or civil partner had subscribed for them).
- You or an associate receive 'value' from the company,
or from a person connected with that company. The rules to do with
receiving value from the company are similar to those for EIS, which
are available in the Enterprise Investment Manual. It can include
the company repaying any of its shares or securities which you hold;
repaying a debt owed to you, if that repayment is in connection with
the issue of shares; you receiving a loan or benefit from the company;
or the company selling an asset to you at less than market value
(or you selling an asset to the company at more than market value).
How much tax relief is withdrawn will depend on the amount of the
value received. Insignificant amounts of value received can be ignored,
and there is also scope for relief to be retained if the value received
is made good by the investor as soon as is practicable.
Find out more in the Venture Capital Scheme manual
Please note: you are required by law to tell your tax office within 60
days of any of the above events occurring.
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