The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) are popular vehicles for investment in small or start-up businesses.

Both are attractive because the tax advantages for ‘qualifying investors’ are considerable. The investment must be in the form of cash for ordinary shares with no special rights attached. The shares must be issued the same day they are paid for.

There are a number of restrictions which apply to determine who is, and who is not, a qualifying investor and on the types of business activity that can be financed. There are also rules regarding the corporate structure and finances of the company applying for EIS or SEIS investment capital.

Of the two schemes, SEIS is less well known.

SEIS is aimed squarely at start-up businesses and is not available if the company has been carrying out the activity for which finance is sought for more than two years.

An SEIS company cannot have gross assets of more than £200,000 and must have 25 or fewer full-time employees.

Any cash raised for an SEIS activity must be used for the purposes for which it was raised within three years, although the trade need not have commenced when the cash is received. It only qualifies for tax relief for the investor after the trade has been ongoing for four months.

SEIS relief will only apply to a maximum of £150,000 in any three-year period.

An investor in an SEIS company receives 50 per cent tax relief on the sum invested, up to a maximum of £100,000. It can only reduce the investor’s liability to zero. ‘Excess relief’ can be carried back one year.

The operation of the EIS scheme is broadly similar to the SEIS. For example, a sale of EIS shares after they have been held for three years is free from Capital Gains Tax. There are a number of other attractive reliefs, such as the ability to set off losses against other income.