Include a share register, the amount your named investor is investing, the new checklist, and directly address the Risk to Capital.
The government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) programmes have been a huge success. At SeedLegals we can see that they fuel the UK’s early-stage startup economy, with the vast majority of £500K and lower funding rounds being powered by angel investors and syndicates looking for SEIS or EIS tax benefits. Many of those investors will only make their investments after the company has obtained confirmation from HMRC that the company is eligible for SEIS or EIS. That’s known as Advance Assurance. It’s clearly proving hugely popular, with HMRC taking up to 8 weeks or more to process these applications.
To try to reduce their workload and reduce processing times for this important pre-approval document, starting October 2019, HMRC have now introduced a number of changes to the Advance Assurance process. We have summarised the main changes below!
1. Share Register
HMRC now require you to submit a Share Register (Register of Members) with your Advance Assurance application - to show the state of the cap table at the date of your application submission.
This one’s easy. Please attach this as a separate .pdf document to the email you will send to HMRC.
You can download your Share Register from the SeedLegals platform by going to Cap Table, click the three dots in the top right, Export Share Register.
2. Intended investment amount of the named investor
HMRC now require you to state the intended investment amount of your named investor(s). Please note, the amount invested needs to be a significant amount of the total you want to raise in the upcoming round - we have asked HMRC for clarification as to what counts as significant and we will let you know when we find out more!
We have now added a section on the platform to allow you to add the name, address and amount invested by the named investor. You will find this in the Advance Assurance work flow. And once you have done added this, the information will show in your cover letter.
3. Risk to Capital Condition
Directly addressing the Risk to Capital condition in your Advance Assurance Application is now a requirement. We recommend addressing this by including a brief SWOT analysis in your business plan (can just be one slide), with a focus on the weaknesses and threats of the business.
4. Advance Assurance Checklist
By far the biggest change to the application process. HMRC now require you to complete a checklist and attach it to your application. We have now uploaded the checklist to the platform - which automatically populates after you fill in the Advance Assurance questions on the platform!
SeedLegals is here to help
SeedLegals helps you deal with these changes to the rules, and help you get your Advance Assurance application approved.
SeedLegals has an SEIS Application Portal where you can get investment ready, enter the details of your potential investors and complete your SEIS Advance Assurance application.
The SeedLegals system will import the potential investor information from your upcoming funding round and automatically generate the HMRC SEIS application form, cover letter and checklist populated with all the information required, including the investor details, ready to send to HMRC. Even better, the SeedLegals team can review your application to make sure it’s correct, so you don’t lose weeks following an HMRC rejection. Once your Advance Assurance has been granted (if you still want to apply for Advance Assurance given the recent changes, rather than just crack on with your funding round), then you’re all set to complete your funding round dramatically faster and cheaper than using a law firm. SeedLegals lets you build your Term Sheet, Shareholders Agreement, Articles and all the other documents needed to close your round. The documents created by the platform are designed to be SEIS and EIS compatible so your investors can be assured that they’ll get their SEIS / EIS benefits.
Following the round, you can even automatically generate SEIS1 and EIS1 forms, and investor certificates.
Help spread the word
Founders need to be aware of these changes before submitting their Advance Assurance applications, and get at least some investors speculatively on board so that they’re able to put some names, addresses and intended investment amount to their Advance Assurance applications. Investors will require a leap of faith on their part to either soft-commit to an investment and wait 6-to-8 weeks for that Advance Assurance to come through, or just forgo Advance Assurance. It’s not legally required, it’s purely there for investor comfort. Then they can just get on with making that investment in a company they believe in, and work with the company to claim the SEIS and EIS benefits later.
And for our part, we’ve contacted HMRC to discuss how, by providing them with standardised Advance Assurance applications complete with a pre-checked documentation pack and pre-approved Articles of Association wording (particularly the all-important Liquidation Preference provisions), we can help bring those approval times down to days, not weeks. Which would be good for all. Please share this article widely so everyone is aware of these changes.