SEIS advance assurance is HMRC’s opinion, given before any shares are issued, that a planned SEIS investment is likely to qualify for the scheme. A company applies online with its business plan, forecasts, articles and details of its prospective investors, and gets back a letter it can show those investors.
It isn’t required by law, and it doesn’t replace the paperwork after the round. Once the shares are issued, the company still files a compliance statement, form SEIS1, and only then can investors get the SEIS3 certificate they need to claim their relief.
What Advance Assurance Is and Isn’t
The HMRC advance assurance guidance describes it as asking HMRC whether it agrees an investment would meet the conditions of a venture capital scheme. The same service covers the Enterprise Investment Scheme (EIS), so a company raising under both can ask for both on one application.
The SEIS rules set which companies qualify and how much they can raise. Advance assurance is HMRC checking one company’s plans against those rules before the money goes in. It’s a UK scheme, so it only applies to a company with a permanent establishment in the UK raising from UK taxpayers. Founders in the US, Australia, Singapore or the UAE raising from investors at home deal with their own country’s schemes and rules instead.
Advance assurance:
- tells investors that HMRC has looked at the plans and thinks the share issue should qualify
- covers one particular issue of shares, as described in the application
- doesn’t guarantee relief to any particular investor, whose own position HMRC hasn’t checked
- isn’t a view on whether the business is a good investment
It stops applying if the company left out a relevant fact, or if things change before the share issue.
What to Include in the Application
HMRC’s guidance lists what it needs to judge the company against each SEIS condition.
| What to send | What HMRC checks with it |
|---|---|
| How much the company plans to raise | The amount against the £250,000 SEIS limit |
| Business plan and financial forecasts | What the trade is and how the company plans to grow it |
| Latest accounts, if there are any | Gross assets and how long the company has traded |
| Each trade and activity, and what will be spent on each | That the money goes on a qualifying trade, not an excluded activity |
| Current articles of association, and any planned changes | That the shares are full-risk ordinary shares |
| Register of members at the date of the application | Who owns the company, and that no other company controls it |
| Latest draft of any document used to pitch investors | What investors are being promised |
| Any other agreements with shareholders | Any arrangement that protects an investor from losing money |
| How the company meets the risk to capital condition | That the business is set up to grow and the money is at real risk |
| Names and addresses of prospective investors | That the raise is real, for a first-time applicant |
The last line is the one first-time applicants can’t skip. HMRC won’t give advance assurance on speculative applications. A company that has never raised under SEIS, EIS or a venture capital trust has to show a serious expectation that named people will invest the amount in the application. One or two names covering a small part of the round isn’t enough.
If the raise is going through a fund manager, a business promoter or a crowdfunding platform, the company sends evidence that they’ve agreed to work with it instead. Leaving an intermediary out makes any assurance invalid.
How to Apply for SEIS Advance Assurance, Step by Step
- Check the company qualifies. The tests on gross assets, employees, the age of the trade and earlier investment apply on the day the shares are issued, so the application is built on what the company will look like on that day.
- Get the articles right. If the articles give the SEIS shares any preference on the company’s assets, or let them be redeemed, they won’t qualify.
- Put the documents together. Everything in the table above, including the investor names or the agreement with the platform or fund manager.
- Apply online. A director, the company secretary or an agent fills in HMRC’s online form. An agent needs a signed letter of authority from the company, dated within the last 3 months.
- Answer any questions. HMRC can ask for more information before it decides, and then writes to the company.
Timelines and Common Reasons for Refusal
HMRC doesn’t publish a set turnaround time for advance assurance. Its guidance says it will contact the company when it has made a decision, and a request for more information adds to that.
HMRC’s answer comes back in one of the ways shown below, and only a refusal comes with reasons.
HMRC’s manual sets out when it refuses or declines to give an opinion. Reasons include:
- The shares have already been issued. Advance assurance is only for a planned issue. After the shares go out, the company files an SEIS1 instead.
- No named investors. A first-time applicant hasn’t shown who is going to invest.
- The risk to capital condition isn’t met. Things like a guaranteed return, a promise to buy the shares back, or one investor protected ahead of the others.
- The trade looks excluded. Activities such as property development, banking and finance, legal and accountancy services, and running hotels or nursing homes.
- Tax avoidance. The investment looks designed to get the relief rather than to grow a business.
There’s no right of appeal, because the service is discretionary. A company can fix what HMRC pointed to and apply again, or raise without assurance and file the SEIS1 in the usual way.
After the Round: SEIS1 and SEIS3
Investors can’t claim any SEIS relief until the company has filed its SEIS compliance statement, form SEIS1, and HMRC has agreed it. The company can only file once one of these conditions is met:
- the new qualifying trade has been carried on for at least 4 months, or
- at least 70% of the money raised by that share issue has been spent
A separate SEIS1 is needed for each share issue, and shares of the same class issued on the same day count as one issue. A company with advance assurance sends copies of any documents that have changed since the application. A company without it sends the full set.
If HMRC is satisfied, it sends a letter of authorisation (form SEIS2), a unique investment reference number and the compliance certificate, form SEIS3. The company fills in an SEIS3 for each investor, with that reference number, and sends it to them. The investor needs both to claim their relief.
The SEIS3 only shows the company met the rules up to the date of the SEIS1, and each investor’s own position still has to qualify. A company that issues a certificate negligently, fraudulently or in breach of the conditions can face a penalty of up to £3,000.
Record-Keeping for 3 Years
The company has to keep meeting the SEIS conditions for at least 3 years after the investment, or HMRC can withhold or withdraw investors’ relief. Things the company tracks over that time include:
- what the money has been spent on, and that it’s all spent within 3 years of the share issue
- the trade, and any change that could turn it into an excluded activity
- any change in who controls the company
- any value going back to investors, such as loans to them or buying back their shares
- any new share issue, so EIS shares are never issued before or on the same day as SEIS shares
If something breaks a condition, the company has to tell HMRC within 60 days of the event, and investors lose some or all of their relief. A clear record of the spending, the share register and any payments to shareholders shows whether that has happened, and a buyer or later investor will want to see it when they do their own due diligence.
Doing It Yourself or Using an Adviser
A company can apply for advance assurance itself. The form is online, and a company with clean articles, a business plan, a forecast and a list of committed investors has most of what it needs.
An accountant, tax adviser or solicitor tends to earn their fee where the facts are less tidy, with things like:
- a group structure, or a company that might be controlled by another
- a trade that’s close to an excluded activity
- articles or a shareholders’ agreement that give some shareholders special rights
- an earlier trade that may count towards the 3-year age limit
- a raise using an advance subscription agreement, which has to be drafted to HMRC’s conditions
An adviser can act as the company’s agent with HMRC and handle the SEIS1 after the round. How SEIS fits into the rest of a raise, from the plan to the structure the money goes in through, is covered in Capital Catalyst.
FAQs
Is SEIS advance assurance mandatory?
No, SEIS advance assurance isn’t a legal requirement. A company can issue SEIS shares without it and file the SEIS1 after the round. Some angels won’t invest without it, because it’s the only way to get HMRC’s view before their money goes in.
How long does SEIS advance assurance take?
HMRC doesn’t publish a set turnaround time for advance assurance. It contacts the company when it has decided, and any request for more information adds to the wait.
Can I apply for SEIS and EIS advance assurance at the same time?
Yes, one application can ask for advance assurance under both SEIS and EIS. The SEIS shares then have to be issued at least a day before any EIS shares.
What happens if HMRC refuses advance assurance?
If HMRC refuses, it writes to the company explaining why, and there’s no appeal. If the application was incomplete or not considered, HMRC gives no feedback. The company can fix the problem and apply again, or issue the shares and file the SEIS1 without assurance.
Next read
If you’re raising and want it run properly, from making the business investable to getting in front of the right investors, that’s what Capital Raiser does. If you’re earlier than that, join Capital Catalyst for free and learn how every type of funding works before you take any of it.
This explains how SEIS advance assurance and compliance generally work for UK companies. It isn’t tax, legal or investment advice, and an accountant or tax adviser should check the company’s position before shares are issued.
