What is SEIS/EIS Advance Assurance, and why is it important?

The ability to offer SEIS & EIS relief to angel investors in your startup is one of the most formidable weapons a founder seeking to raise investment can have in their arsenal. In order to use that weapon you need to show that you have secured the approval from HMRC – which is where ‘advance assurance’ comes into play.

At its core, advance assurance is a written confirmation from HMRC that based on the information provided to HMRC a company’s (proposed) business activity and how it plans to spend investment monies will meet the criteria for SEIS/EIS tax reliefs. Obtaining advance assurance is standard practice for startups raising investment from UK angels. Though this is not mandatory, and a company may apply for SEIS/EIS tax reliefs once an investment round has concluded, obtaining advance assurance is helpful because it:

• confirms eligibility for SEIS/EIS, as it is a formal way for a company to ask HMRC to assess their business plan and approve their eligibility as per the SEIS/EIS rules in respect of a specific investment;
• provides investors with confidence, in that they will be assured that the shares they are issued will qualify for SEIS/EIS tax relief, which is often a major factor in determining their decision to invest in high-risk startups;
• increases the investability of your company, as a lot of angel investors will not invest in a startup that does not have advance assurance from HMRC; and
• streamlines the investment process and makes it quicker, easier and less risky to claim the tax relief following the investment.

The single most important point of which all founders must be aware is that the advance assurance is only enforceable against HMRC where full complete and accurate information has been provided to them. The rules look simple but are actually extremely complex. Ignorance is no excuse. Consequently, founders should be extremely careful in ensuring that all information provided to HMRC is accurate and complete.

How does the advance assurance process work?

Step 1:  Confirm that your company is eligible for the SEIS/EIS scheme (see the article here for a full list of the criteria)

Step 2: Prepare and gather the necessary documentation, which are:

• a detailed business plan (that can be in the form of a pitch deck), which explains how the investment that you are seeking SEIS/EIS reliefs in respect of will be used for growth and development, and a 3-year profit and loss forecast;
• a copy of your company’s latest statutory accounts, or a recent company bank statement (in the event that your company has not submitted accounts);
• articles of association;
• your register of members (shareholders) as at the application date;
• any information memorandum, or prospectus used to explain the fundraising proposal to potential investors;
• the full name(s), address(es), and intended investment amount(s) for at least one genuine potential investor;
• an agent authorisation letter (if applicable);
• an explanation of how your company meets the “risk to capital” condition (wherein you would demonstrate the company’s long term growth objectives, as well as the risk that the investor is taking in contributing capital);
• your company’s Unique Taxpayer Reference number and company registration number; and
• the details of any previous investments received under SEIS/EIS or state aid grants

Step 3: Complete the advance assurance application through the HMRC website, wherein you would attach all of the supporting documents.

Step 4: Once your application is approved, HMRC will send you a letter confirming that you meet the eligibility requirements for the scheme on the basis of the information that you have provided. This letter can be used as proof of your compliance for any investors for whom this may be a prerequisite before contributing capital to your company,

Step 5: Once the terms on which the investors are to contribute funding to your company have been finalised, and the additional funds have been secured, issue the shares to your investors. Once shares have been issued, you will need to submit a compliance statement (SEIS1/EIS1) to HMRC, wherein HMRC  will confirm that the company continues to meet the scheme’s criteria after the investment. Only upon receipt of authorisation from HMRC to issue investors with compliance statements (SEIS3/EIS3) can the company send compliance certificates to their investors. It is an extremely serious criminal offence to send SEIS3/EIS3 to investors without written authorisation from HMRC.

Where possible advance assurance should be sought before every fundraising, especially as companies move into EIS. Advance Assurance relates to a specific round and does not give a blanket approval for all future fundraising.

As the UK’s only law firm exclusively working with startups and high growth businesses, SEIS/EIS advance assurance applications are a process with which Buckworths has extensive experience. Unlike legaltech platforms, we provide expert advice to clients on SEIS and EIS qualification and assist with securing advance assurance for more complex applications. SEIS and EIS can be extremely complex. Failure to spot or adequately address complexity can result in advance assurance being refused or tax relief later voided. If you have any doubt about any aspect of SEIS or EIS, you must get professional advice.

You can reach out to us by calling 020 7952 1723, or emailing [email protected] if you would like to join the ever-growing list of startups whose founders and investors have the peace of mind that a successful advance assurance application brings.