SEIS vs EIS and the Key Differences Founders Must Know

The Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) are two HMRC venture capital reliefs that let UK companies offer investors generous income tax and capital gains tax incentives. They are designed to work in sequence rather than competition: SEIS is aimed at the very earliest stage, EIS at the growth stage that follows. This article is part of our SEIS and EIS series and sits underneath the flagship pillar, the complete SEIS and EIS founders guide at /guides/seis-eis-guide-uk-startups/, which you should read first for the full picture.

If you have already decided which scheme you are using, two companion articles go deeper on the points founders trip over most. One covers whether founders and their family can benefit from SEIS and the 30% connected-person rule at /blog/founders-family-seis-30-percent-connected-person-rule/. The other sets out exactly how much you can raise under each scheme at /blog/seis-eis-investment-limits-how-much-you-can-raise/. Here we focus on the structural differences that decide which scheme fits your company today.

Before the differences, it helps to fix the shared foundations. Both schemes require ordinary shares to be issued for cash, fully paid up at the time of issue, and carrying no preferential rights to assets on a winding up. Under both, the investor must hold the shares for at least three years from the date of issue, or relief can be withdrawn. Both offer capital gains tax exemption on a qualifying disposal of the shares after that holding period, loss relief if the investment fails, and the ability to carry back relief to the previous tax year.

Both schemes also exclude investments structured to give investors a guaranteed exit or protected downside, and both require the company to be carrying on a genuine qualifying trade rather than an excluded activity. The point of the reliefs is to reward genuine risk capital, so anything that removes the risk tends to disqualify the investment. Beyond these common bones, the two schemes diverge sharply on company size, age and the headline relief.

The most visible difference is the rate of income tax relief an investor can claim. SEIS gives 50% income tax relief on the amount invested, on up to £200,000 of investment per tax year. EIS gives 30% income tax relief, on a much larger annual ceiling of up to £1,000,000 per tax year, rising to £2,000,000 where at least the amount above £1,000,000 is invested in knowledge-intensive companies.

For a founder pitching to angels, the SEIS rate is a powerful tool early on: an investor putting in £20,000 under SEIS can reduce their income tax bill by £10,000, so their net cost is half the headline figure. The same £20,000 under EIS reduces tax by £6,000. The higher SEIS rate reflects the higher risk of backing a company at its very earliest stage.

SEIS is for new companies. To qualify, the company must be carrying on a new qualifying trade that began less than three years before the share issue. EIS allows older companies: the trade must generally have begun no more than seven years before the share issue, extended to ten years for a knowledge-intensive company. The age clock runs from the first commercial sale, not from incorporation, which catches some founders out.

There are nuanced rules for companies that received their first risk-finance investment within the relevant window, and for follow-on funding, so the age test is one to confirm with an accountant before you market a round. The broad picture, though, is simple: SEIS for the first three years, EIS for the growth years that follow.

SEIS is restricted to small companies. At the time of the SEIS share issue, the company gross assets must not exceed £350,000. EIS allows much larger balance sheets: gross assets must not exceed £15,000,000 immediately before the share issue, and not exceed £16,000,000 immediately after it. These thresholds, like the age tests, are designed to keep each scheme pointed at its intended stage.

Headcount is another size gate. An SEIS company must have fewer than 25 full-time-equivalent employees at the date of the share issue. An EIS company must have fewer than 250 full-time-equivalent employees, rising to fewer than 500 for a knowledge-intensive company. Directors count towards these figures, but certain people such as students on vocational training are excluded under the detailed rules.

The amount a company can raise differs dramatically between the two schemes. A company can raise a maximum of £250,000 in total through SEIS across its lifetime. EIS allows up to £5,000,000 per year and up to £12,000,000 over the company lifetime, rising to £10,000,000 per year and £20,000,000 lifetime for knowledge-intensive companies. All SEIS, EIS and other state-aided risk-finance investment counts towards a combined lifetime limit, so SEIS money raised early reduces the EIS headroom later.

A common sequence is to raise the SEIS £250,000 first, then move to EIS for subsequent rounds. The companion article on investment limits at /blog/seis-eis-investment-limits-how-much-you-can-raise/ works through how the two ceilings interact within a single round and across a company lifetime.

The table below summarises the structural differences. Figures reflect HMRC rules for the schemes as commonly applied; always confirm the current thresholds with an accountant before relying on them, because detailed conditions and follow-on rules can change.

Yes, and many companies do. A company can raise SEIS first and EIS later, and within a single funding round different investors can hold SEIS shares and EIS shares, provided the conditions for each are met. The critical rule is sequencing within a round: SEIS shares must be issued before EIS shares to the extent both reliefs are claimed on the same day of issue, because the SEIS investment has to be in place first. Getting the order and the dates right is a job for an accountant, since a sequencing error can invalidate relief that would otherwise be due.

A typical funding journey

A first-time founder might raise £150,000 of SEIS from angels at the idea stage, build a product, then raise £1,500,000 of EIS from a syndicate eighteen months later. The early investors got 50% relief on a higher-risk bet; the later investors got 30% relief on a more developed company. Both stages stayed inside their respective company-level limits, and both sets of investors held for at least three years to keep their relief.

One area where the two schemes share a rule but apply it differently is connection. Under both schemes, an investor who, with their associates, holds more than 30% of the company shares, voting rights or rights to assets on a winding up cannot claim relief. There is, however, a key practical difference: SEIS allows a paid director to invest and claim relief, whereas EIS generally does not permit employees to claim, and applies tighter restrictions to directors. The detail of who counts as connected, and how family members are aggregated, is covered in the companion article at /blog/founders-family-seis-30-percent-connected-person-rule/.

Choosing between SEIS and EIS is rarely a free choice: it is usually dictated by your company age, size and how much you have already raised. If you are under three years trading, below the asset and headcount limits, and have not yet used your SEIS allowance, SEIS gives your investors the strongest incentive and should normally come first. Once you outgrow the SEIS limits, EIS extends the same family of reliefs to larger rounds.

Use the checklist below as a quick orientation, then confirm eligibility properly before you market the round.

• Trading for under three years, fewer than 25 staff, assets under £350,000, raising under £250,000: SEIS is likely the right scheme.
• Outgrown one or more SEIS limits, trading under seven years, assets under £15m, raising up to £5m a year: EIS is likely the right scheme.
• A knowledge-intensive company: EIS extends the age, headcount and funding limits in your favour.
• Unsure which limit you are about to breach: get advance assurance and a structuring review before issuing shares.

SEIS and EIS reward founders who plan the sequence early and keep the paperwork clean. The structural differences set out here decide which scheme applies; the companion articles deal with who can benefit and how much you can raise. For the complete picture, including advance assurance and the compliance certificates investors need, start with the flagship pillar at /guides/seis-eis-guide-uk-startups/. Because the rules carry detailed conditions and the figures can change, treat this article as orientation and take professional advice on your specific round.