The government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) programmes have been a huge success. At SeedLegals we can see that they fuel the UK’s early-stage startup economy, with the vast majority of £500K and less funding rounds being powered by angel investors and syndicates looking for SEIS or EIS tax benefits. Many of those investors will only make their investments after the company has obtained confirmation from HMRC that the company is eligible for SEIS or EIS. That’s known as Advance Assurance. HMRC typically take 2-6 weeks to process these applications.

SEIS/EIS Advance Assurance applications must include the name and address of at least one potential investor and investment intent for at least 30% of the amount of SEIS/EIS you’re applying for.

Applications which don’t contain that will be deemed as ‘speculative investments’ and rejected.

HMRC has introduced this change to reduce the demand for the Advance Assurance service. 30% of approved applications are speculative and don’t result in investment, and HMRC are aiming to limit applications only to those companies which have demonstrated investor interest — they’ve put together a helpful summary of their reasoning (PDF).

What this means for startups

This requirement can create a Catch-22: the startup needs to know who their investors will be before they can obtain Advance Assurance, and investors will often only commit to investing after the company has obtained their Advance Assurance! Previously you could apply for Advance Assurance many months before your funding round so you’d have everything in place before you approached investors, but you’ll now need to have at least some level of interest from specific investors before you can lodge your application.

But, don’t worry, HMRC are aware of the Catch-22, and so they only want the name and address of one or more potential investors – they’re not in any way committing to invest.

If you’re doing a crowd round…

If you’re doing a crowdfunding round then instead of needing to provide the name and address of at least one investor (which you may not know ahead of your crowd campaign going live) it’s fine to include instead a signed agreement with your crowdfunding platform. We provide one-click support for popular crowdfunding platforms, so if you’re doing your SEIS/EIS Advance Assurance application on SeedLegals for an upcoming crowd round, just select that and we’ll prompt you to attach the engagement letter with your crowd platform rather than having to include investor names, easy.

Don’t forget your Business Plan

HMRC also requires SEIS/EIS Advance Assurance applications to include a 3 year business plan “of the same level of detail that you would send to your investors”. Basically, if it’s a £150K SEIS round a page or two in your slide deck showing P&L and revenue by year for the next 3 years should be fine, if you’re raising £2M you would likely need more. So be sure to include sufficient detail on your business growth to satisfy this requirement – here’s what you’ll need for your business plan.

SeedLegals is here to help

SeedLegals helps you deal with these change to the rules, including the new Risk To Capital requirement, and help you get your Advance Assurance application approved.

See our detailed step by step guide to doing your SEIS/EIS Advance Assurance for more.

The SeedLegals team will review your application to make sure everything is correct so you don’t lose weeks following an HMRC rejection.

Once your Advance Assurance has been granted then you’re all set to complete your funding round dramatically faster and cheaper than using a law firm. SeedLegals lets you build your Term Sheet, Shareholders Agreement, Articles and all the other documents needed to close your round.

The documents created by the platform are designed to be SEIS and EIS compatible so your investors can be assured that they’ll get their SEIS / EIS benefits.

Following the round, you can then do your SEIS/EIS Compliance which will create the SEIS1 and EIS1 forms and the SEIS3/EIS3 certificates for your investors.