Screen and Creative - Enterprise Investment Scheme (EIS)and Seed Enterprise Investment Scheme (SEIS)
A quick guide
(Just to note that it is essential to get expert advice - the following is only a guide and we are not responsible for what is on external websites.)
The UK government offers tax credits for the creative industry, which includes eight targeted reliefs such as Film Tax Relief, Animation Tax Relief, and Video Games Tax Relief. These can result in a cash refund of up to 20% of eligible expenditure. For further details, see the BDO Intellectual Property and Creative Sector Tax Credits page (BDO UK ).
You may be used to all this information but if not, it is worth being aware as this can help you get investment.
Using the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) can be particularly advantageous for businesses in the creative, screen, digital, and tech sectors. These sectors often involve high levels of innovation and risk, making them ideal candidates for the tax reliefs offered by these schemes. Here’s how you can leverage EIS and SEIS for these industries.
Key Features of SEIS and EIS
SEIS (Seed Enterprise Investment Scheme)
- Target Audience: Early-stage companies that have been trading for less than three years.
- Eligibility: Companies must have fewer than 25 employees and less than £350,000 in gross assets.
- Investment Limits: Individual investors can invest up to £200,000 per tax year.
- Tax Relief: Investors can claim up to 50% income tax relief on their investments. Additionally, gains from SEIS shares are exempt from Capital Gains Tax (CGT) if held for at least three years.
- Loss Relief: If the investment fails, losses can be offset against the investor's Income Tax or CGT, offering a cushion against the financial risks associated with start-ups.
- Inheritance Tax Relief: SEIS shares held for at least two years are exempt from inheritance tax.
EIS (Enterprise Investment Scheme)
- Target Audience: More established companies, trading for less than seven years.
- Eligibility: Companies can have up to 250 employees and less than £15 million in gross assets.
- Investment Limits: Individual investors can invest up to £1 million per tax year (up to £2 million if investing in knowledge-intensive companies).
- Tax Relief: Investors receive 30% income tax relief on their investments, with gains exempt from CGT if shares are held for at least three years.
- Loss Relief: Similar to SEIS, losses can be offset against Income Tax or CGT.
Inheritance Tax Relief: Shares held for at least two years are exempt from inheritance tax.
Benefits and Considerations
Benefits
- Tax Incentives: Both schemes offer substantial tax reliefs, making them attractive options for investors looking to mitigate risk while supporting innovative UK companies.
- Diversification: Investors can spread their investments across multiple qualifying companies, enhancing the potential for returns and reducing overall risk.
- Support for Growth: SEIS and EIS funds can be used for a variety of growth activities, including hiring, marketing, and R&D, helping companies scale effectively.
Considerations
- Compliance: Companies must meet specific criteria to qualify, and investors must ensure they adhere to the rules to maintain their tax reliefs.
- Long-Term Commitment: Investments must be held for at least three years to gain the full benefits, requiring a long-term view from investors.
Advance Assurance: Companies often seek advance assurance from HMRC to reassure investors of their eligibility, though this is not legally binding.
Benefits for Creative, Screen, Digital, and Tech Sectors:
- Tax Relief for Investors:
- Investors in SEIS can claim up to 50% income tax relief on investments up to £200,000 per tax year, making it very attractive for high-net-worth individuals looking to support early-stage companies.
- EIS investors receive 30% income tax relief on investments up to £1 million per tax year, or £2 million for knowledge-intensive companies (KICs), which often include tech startups.
- Investors in SEIS can claim up to 50% income tax relief on investments up to £200,000 per tax year, making it very attractive for high-net-worth individuals looking to support early-stage companies.
- Capital Gains Tax (CGT) Exemption:
- Profits from shares held for at least three years are exempt from CGT, which can be a significant incentive for investors.
- Profits from shares held for at least three years are exempt from CGT, which can be a significant incentive for investors.
- Loss Relief:
- If the business fails, investors can offset losses against their income or CGT, reducing the financial risk involved in investing in high-risk sectors like creative and tech.
- If the business fails, investors can offset losses against their income or CGT, reducing the financial risk involved in investing in high-risk sectors like creative and tech.
- Attracting High-Value Investors:
- These schemes make it easier to attract angel investors and venture capitalists who are looking for tax-efficient investment opportunities, which is crucial for funding expensive projects in the creative and tech sectors.
Steps to Utilise EIS and SEIS
- Eligibility Check:
- Creative and Screen Industries: These include film production, television, animation, and video games. Ensure your business fits within the eligibility criteria for either SEIS or EIS.
- Digital and Tech Sectors: This includes software development, digital platforms, and tech startups. Confirm your business meets the requirements, such as being a UK-based company, having a qualifying trade, and not being publicly listed.
- Creative and Screen Industries: These include film production, television, animation, and video games. Ensure your business fits within the eligibility criteria for either SEIS or EIS.
- Advance Assurance:
- Apply for advance assurance from HMRC. This gives potential investors confidence that your company qualifies for EIS or SEIS. This step is crucial in sectors like creative and tech, where investor trust is essential.
- More details on obtaining advance assurance can be found on SeedLegals (SeedLegals) (SeedLegals).
- Apply for advance assurance from HMRC. This gives potential investors confidence that your company qualifies for EIS or SEIS. This step is crucial in sectors like creative and tech, where investor trust is essential.
- Prepare for Investment:
- Develop a compelling pitch deck that highlights your business plan, financial projections, and the innovative aspects of your project. For creative projects, emphasize unique content, production quality, and market potential. For tech startups, focus on technological innovation, scalability, and market disruption.
- Utilize platforms that cater specifically to EIS and SEIS investments, such as Seedrs or Crowdcube, to reach potential investors.
- Develop a compelling pitch deck that highlights your business plan, financial projections, and the innovative aspects of your project. For creative projects, emphasize unique content, production quality, and market potential. For tech startups, focus on technological innovation, scalability, and market disruption.
- Compliance and Documentation:
- Ensure all investments meet the criteria for SEIS/EIS. This includes issuing shares within the allowed time frame and keeping detailed records.
- Consult with experts or use services from companies like SeedLegals to manage compliance efficiently. They offer comprehensive guides and tools to navigate SEIS/EIS processes.
- Ensure all investments meet the criteria for SEIS/EIS. This includes issuing shares within the allowed time frame and keeping detailed records.
Specific Sector Considerations:
- Creative and Screen Industries:
- Leverage additional incentives such as Film Tax Relief, Animation Tax Relief, and Video Games Tax Relief alongside SEIS/EIS to maximize funding opportunities. Detailed information on these can be found on the BDO website (BDO UK ).
- Leverage additional incentives such as Film Tax Relief, Animation Tax Relief, and Video Games Tax Relief alongside SEIS/EIS to maximize funding opportunities. Detailed information on these can be found on the BDO website (BDO UK ).
- Digital and Tech Sectors:
- Use SEIS/EIS in conjunction with R&D Tax Credits to fund innovative projects. R&D Tax Credits can provide significant cash injections or tax reductions for qualifying research and development activities. More on this can be found on KPMG's Innovation Reliefs page (KPMG).
- Use SEIS/EIS in conjunction with R&D Tax Credits to fund innovative projects. R&D Tax Credits can provide significant cash injections or tax reductions for qualifying research and development activities. More on this can be found on KPMG's Innovation Reliefs page (KPMG).
By effectively utilising SEIS and EIS, businesses in the creative, screen, digital, and tech sectors can access vital funding, reduce investor risk, and enhance their growth prospects. For further guidance and detailed processes, consulting firms like Deloitte, BDO, and SeedLegals provide extensive resources and expert support.