Why SEIS/EIS Tax Relief Matters
Starting up is hard enough without a tax headache.
SEIS and EIS schemes reward early investors with hefty reliefs.
But slip up on the rules, and you risk losing that relief – for you and your backers.
We’ve seen it all. From missing forms to misclassifying shares.
These EIS funding pitfalls trip up even savvy founders.
So let’s dive in. You’ll learn 7 of the most common mistakes – and how to dodge them.
Common SEIS/EIS Tax Mistakes and How to Avoid Them
1. Missing the Critical Application Windows
Timing is everything.
Under SEIS, you must issue shares within three years of starting trade.
With EIS, it’s also three years, but the clock starts from your major expenditures.
What founders do:
- Assume “one size fits all” timing.
- Forget dates on HMRC letters.
- Delay paperwork until last minute.
Why it matters:
- Missed windows = ineligible investors.
- Investors can’t claim relief.
- You burn goodwill (and referrals).
How to avoid it:
- Set calendar alerts for HMRC deadlines.
- Use Oriel IPO’s educational webinars to map your timeline.
- Keep a simple spreadsheet of key dates.
“We didn’t issue shares until Month 40 – investors lost SEIS relief. Lesson learned.”
2. Incorrect Share Classification
Not all shares are created equal.
Ordinary shares? Good.
Preference shares? Usually no-go for SEIS.
Common slip-ups:
- Issuing special voting rights.
- Adding unusual dividend locks.
- Mixing share classes in one round.
These tweaks sound tiny. But they can void relief.
How to avoid it:
- Stick to “ordinary” or “non-redeemable” shares.
- Run your terms by an accountant familiar with EIS funding pitfalls.
- Use Oriel IPO’s curated investment marketplace – every opportunity is vetted for compliance.
3. Overlooking Advanced Assurance
Advanced Assurance is your friend.
It’s a green light from HMRC that your plan likely qualifies.
Why skip it?
- You’re in a rush to fundraise.
- You’ve done it before and think you know the drill.
- You don’t want “yet another” piece of admin.
Reality check:
- Without it, investors worry.
- You lose credibility.
- Deals stall.
How to avoid it:
- Apply early – even before your first pitch.
- Collect standard docs: business plans, cashflow forecasts, trade descriptions.
- Rely on Oriel IPO’s guides to tick every box.
4. Blurring SEIS and EIS Boundaries
They share letters but not rules.
SEIS targets really early, tiny startups.
EIS covers larger ventures.
Common mix-ups:
- Counting SEIS investment against EIS cap.
- Treating a follow-on round as SEIS.
- Forgetting that EIS has a higher investment limit (£5m vs £150k).
Consequences:
- You overshoot caps.
- Investors get hit with unexpected tax bills.
- You juggle refunds with HMRC.
How to avoid it:
- Label rounds clearly: “SEIS Series A” vs “EIS Series B”.
- Use a simple funding tracker.
- Check Oriel IPO’s platform – they separate SEIS and EIS projects neatly.
5. Neglecting Qualifying Trade Conditions
HMRC cares what you actually do.
“Trade” excludes:
- Financial services.
- Property development.
- Energy generation (mostly).
Startups slip by:
- Assuming “tech” always qualifies.
- Trying to shoe-horn side activities (like renting office space).
- Failing to prove core trade.
Pitfall:
- Relief gets denied after years of claims.
- Tax bills bounce back with penalties.
How to avoid it:
- Read HMRC’s trade definition.
- Focus pitches on qualifying activities.
- Grab Oriel IPO’s free checklists to test your trade eligibility.
Mid-Article nudge
6. Poor Record-Keeping on Investor Compliance
You raised funds. Great. Now collect proof.
You need:
- Subscription agreements.
- Share certificates.
- Investor address and ID checks.
Founders often:
- Store bits of paper in random folders.
- Forget digital backups.
- Lose track of pre- and post-money valuations.
Result:
- You can’t reconcile who owns what.
- HMRC queries go unanswered.
- Investors panic.
How to avoid it:
- Use cloud storage with named folders per funding round.
- Export data from Oriel IPO’s platform – it logs every investor document.
- Set quarterly reviews: reconcile cap table vs. documents.
7. Ignoring Share Capital Changes
Your share capital evolves. So do the rules.
You add new shares.
You convert debt.
You do a 10-for-1 stock split.
Each tweak can:
- Impact SEIS/EIS eligibility.
- Trigger a fresh HMRC application.
- Confuse investors.
Tips to avoid:
- Treat every change as “material”.
- Update HMRC within a month of any capital alteration.
- Lean on Oriel IPO’s subscription model – they flag when your capital structure needs a review.
Wrapping Up the EIS Funding Pitfalls
These 7 mistakes are surprisingly common. But they’re avoidable.
Key takeaways:
- Plan your timelines.
- Keep it simple: ordinary shares only.
- Get Advanced Assurance.
- Know your trade.
- Document everything.
- Track every share movement.
Remember, EIS funding pitfalls don’t have to trip you. A little structure goes a long way. And you don’t have to do it alone.
Oriel IPO’s commission-free, tax-focused platform connects you with savvy investors. It provides:
- Curated investment opportunities.
- Educational resources: guides, checklists, webinars.
- Automated compliance reminders.
So you spend less time on paperwork and more on growth.
Next Steps
Ready to sidestep these EIS funding pitfalls and focus on what you do best – building your business?
