Kickstarting Your Crowdfunding Journey with SEIS & EIS
Crowdfunding can turn a bright idea into reality. But without the right guidance, you could end up tangled in tax rules and VAT minefields. In the UK, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS) offer SEIS tax advantages that make investing in early-stage startups more appealing. These schemes can slash income tax liabilities and even eliminate capital gains on successful exits.
Thinking of crowdfunding under SEIS or EIS? You need to know how VAT applies, what reliefs you can claim, and where common traps lie. Get ahead of the curve—Discover SEIS tax advantages with Oriel IPO and revolutionise investment opportunities in the UK—and ensure your campaign runs smoothly from launch to finish.
What Are SEIS and EIS?
The UK government introduced SEIS and EIS to encourage investment in small and growing companies. They both deliver powerful SEIS tax advantages, but they target different stages:
- SEIS
- Invest up to £150,000 in a qualifying startup
- Claim 50% of your gross investment as income tax relief
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Carry back relief to the previous tax year
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EIS
- Invest up to £1 million (or £2 million in knowledge-intensive businesses)
- Claim 30% income tax relief
- Defer capital gains tax on other assets by reinvesting gains
These schemes aren’t just about income tax relief. They also offer loss relief (offsetting losses against your income) and capital gains exemption when you sell your shares after at least three years.
The Four Faces of Crowdfunding
Not every crowdfunding model is eligible for SEIS and EIS. Let’s break down the main types:
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Donation-based
– Backers give money expecting nothing in return.
– Treated as gifts, usually VAT-free. -
Rewards crowdfunding
– Supporters receive non-financial rewards (merchandise, event tickets).
– HMRC views contributions as advance payments for goods or services—potentially VATable. -
Debt crowdfunding (Peer-to-peer lending)
– Investors lend money and receive principal plus interest.
– Tax on interest follows loan relationship rules; possible relief if defaults occur. -
Equity crowdfunding
– Investors receive company shares in exchange for funds.
– Qualifies for SEIS/EIS if the company meets specific criteria.
Understanding these models helps you pick the right platform—and unlock vital SEIS tax advantages when equity crowdfunding under the proper scheme.
How Tax Relief Works under SEIS and EIS
Here’s a quick rundown of the headline benefits:
- Income Tax Relief
- SEIS: 50% of investment value.
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EIS: 30% of investment value.
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Loss Relief
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If the business fails, offset losses (after income tax relief) against income.
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Capital Gains Tax (CGT) Exemption
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No CGT on gains realised from SEIS/EIS shares held for at least three years.
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CGT Reinvestment Relief
- Defer other capital gains by reinvesting them into EIS shares.
To qualify, companies must be UK-based, carry out a qualifying trade, and have less than £15 million (SEIS) or £250 million (EIS) in gross assets. Investors must hold shares for a minimum of three years. These tight rules ensure genuine startups benefit—and genuine investors reap the SEIS tax advantages.
VAT Treatment on Crowdfunding
VAT can trip up startups fast. HMRC’s VAT Notice 701/41 and the VAT Finance Manual spell out the rules:
- Donations: No reward → no VAT.
- Rewards: Advance payment for goods/services → VATable supply.
- Equity: Sale of shares → exempt from VAT.
Timing matters. VAT registration is triggered when you exceed the £85,000 threshold in a 12-month period. For rewards crowdfunding, the “time of supply” is when you deliver the reward, not when you receive the pledge. A famous HMRC ruling against Lunar Missions Ltd underlined this distinction—and caught many out.
Common Pitfalls and Practical Tips
Crowdfunding isn’t magic. Here’s what to watch:
- Late VAT Registration
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Keep an eye on reward fulfilment dates.
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Ineligible Trades
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SEIS/EIS exclude property development, financial services, and a few others.
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Holding Period Mistakes
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Selling shares before three years forfeits tax relief.
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Underestimating Costs
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Legal, accounting and marketing fees add up.
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Lack of Documentation
- Maintain records: investor certificates, board minutes, financial statements.
How Oriel IPO Simplifies Your SEIS/EIS Crowdfunding
Navigating SEIS tax advantages isn’t straightforward. That’s where Oriel IPO steps in. Our UK-based online investment marketplace helps founders connect with angel investors—without hidden fees. Here’s how we stand out:
- Commission-free model: Startups keep more of the funds raised.
- Curated and vetted opportunities: Investors see only eligible SEIS/EIS campaigns.
- Comprehensive educational resources: Guides, webinars and insights explain every relief and VAT nuance.
Whether you’re launching an equity round or exploring EIS reinvestment for relief, Oriel IPO’s platform streamlines the process.
Learn about SEIS tax advantages and take your startup funding to the next level
Client Success Story
“I was worried about the paperwork and strict SEIS criteria. Oriel IPO’s team guided me through every step, and my investors saved thousands in tax.”
— Sarah M., Founder
Practical Steps to Maximise SEIS Tax Advantages
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Plan Early
– Confirm eligibility before marketing your round.
– Engage your accountant to draft necessary documentation. -
Structure Your Offer
– Decide between pure equity or equity-plus-rewards.
– Keep rewards simple—avoid complex VAT scenarios. -
Document Everything
– Issue SEIS1/EIS1 certificates promptly.
– Record board meetings and investor approvals. -
Communicate Clearly
– Explain SEIS/EIS reliefs in your pitch.
– Highlight tax benefits to entice investors. -
Follow Through
– Deliver rewards on time.
– Maintain financial transparency post-funding.
By following these steps and leveraging Oriel IPO’s resources, you’ll optimise the SEIS tax advantages and keep HMRC happy.
Testimonials
“Oriel IPO’s platform made SEIS compliance a breeze. I focused on growing my business, not chasing paperwork.”
— Tom A., Angel Investor“The educational webinars clarified VAT traps I didn’t even know existed. Saved me time and money.”
— Priya K., Startup Founder
Wrapping Up and Next Steps
Understanding SEIS relief, EIS options and VAT treatment is essential for successful crowdfunding. With the right strategy, you can:
- Slash income tax on investments.
- Avoid unexpected VAT bills.
- Attract more investors with clear, documented benefits.
Ready to harness the full power of SEIS tax advantages? Oriel IPO’s commission-free, tax-focused platform is designed to help you every step of the way.
