SEIS & EIS explained for founders
If you're raising your first round in the UK and someone hasn't already mentioned SEIS or EIS to you, they will. These two tax-relief schemes are how UK angel investors and seed funds invest in startups — and getting them right (or wrong) at incorporation has consequences that ripple for years.
Here's the founder-grade summary: what they are, what they mean in practice, and the order to do things in.
What are SEIS and EIS?
SEIS (the Seed Enterprise Investment Scheme) and EIS (the Enterprise Investment Scheme) are HMRC schemes that give individual investors generous tax relief for investing in qualifying UK startups. The relief is the carrot that makes early-stage UK angel investing viable.
From a founder's perspective: if your company qualifies, your round becomes meaningfully more attractive to UK angels. A £100,000 SEIS investment effectively costs the investor £50,000 after income tax relief — and that's before any capital gains benefit.
SEIS vs EIS — the practical differences
| Feature | SEIS | EIS |
|---|---|---|
| Stage of company | Very early (under 3 years) | Later (up to 7 years) |
| Max raise (lifetime) | £250,000 | £12m (£20m for KIC) |
| Income tax relief | 50% | 30% |
| Investor annual limit | £200,000 | £1m (£2m if KIC) |
| Max company assets | £350,000 | £15m |
| Employees limit | Under 25 | Under 250 |
Numbers reflect rules as we publish; HMRC updates limits periodically — always confirm at the point of raise.
The eligibility traps to avoid
The headline rules are easy. The traps that disqualify companies are usually structural — and almost always set up at incorporation. We see the same three mistakes again and again:
1. Wrong share class for founders
SEIS/EIS shares must be "ordinary, full-risk" shares — no preference rights. If founders own shares with different rights from the new investors, that's usually fine — but if the new investors get any preferred terms (liquidation preferences beyond the standard, redemption rights, guaranteed dividends), the relief is lost.
2. Subsidiary structure done wrong
If your UK Ltd has subsidiaries — or a parent — there are specific rules about ownership percentages and trading activity. The cleanest structure is a single UK Ltd that does the trading itself. If you're spinning out from another company, get advice early.
3. "Excluded" trades
Some activities don't qualify: dealing in financial instruments, property development, legal/accounting services, leasing, banking. Most tech startups are fine — but if you sell financial services, lease equipment or operate as a "platform" that takes positions, talk to your accountant before raising.
Advance Assurance — and why you want it
Advance Assurance is a letter from HMRC saying "yes, based on what you've described, your company looks like it qualifies for SEIS/EIS." It's not a binding guarantee — but it's close.
Investors won't write you a cheque without it. So before you go to market with your round, you submit:
- A business plan (4–8 pages, plain English, focused on the trade)
- The most recent financial accounts (or projections if pre-revenue)
- The names and addresses of the prospective investors (anonymised is fine if you don't have signed terms)
- A summary of the proposed investment
- Latest cap table and Memorandum & Articles
HMRC currently takes 4–8 weeks to respond. Budget for it.
Pro tip: apply for Advance Assurance before you start having serious conversations with angels. Nothing kills momentum like "yes, we're interested — come back when you have AA". You can apply with hypothetical investor placeholders.
The investor side — what your angels will ask for
After the round closes, your investors need SEIS3 / EIS3 certificates to claim their relief. These are issued by HMRC after you submit a SEIS1 / EIS1 compliance statement — which you can only do after either four months of trading, or 70% of the funds have been spent.
This catches founders out: investors expect the certificates within weeks of investing, but you can't legitimately issue them until you've met one of those tests. Set expectations early.
The 3-year cliff
For your investors to keep their tax relief, the company has to remain "qualifying" for three years from the share issue date. That means: don't return capital to those investors early, don't do something that puts you outside SEIS/EIS rules (like becoming majority-owned by another company), and keep up the qualifying trade.
Most founders manage this naturally — but it's worth knowing, because some otherwise-sensible decisions (buy-back, restructure, partial exit) can claw back your investors' relief.
The order to do things in
- Incorporate cleanly. UK Ltd, single share class for ordinary shares, no fancy founder preferences.
- Get your books in order. Advance Assurance applications go more smoothly when prior accounts are clean.
- Apply for SEIS Advance Assurance first. Get the cheaper money in first while you qualify.
- Round 1: SEIS up to £250k. 50% income tax relief is a great pitch.
- Switch to EIS for everything above SEIS limits. 30% relief, higher caps.
- Submit SEIS1/EIS1 promptly after the qualifying period. Investors will chase you.
- Stay qualifying for 3 years. Easy if you're growing; check before any structural change.
How City Solution helps
Advance Assurance applications, share structure design, SEIS1/EIS1 filings, and the ongoing "is this decision going to break my investors' relief?" sanity-check — all included in our Growth and Scale packages, or available standalone as a fundraising support project.
Next up: Hiring your first employee: payroll basics — because once you've raised, the first thing most founders do is hire.