General SEIS/EIS

Your SEIS Allowance: De Minimis Aid Deductions

How does De Minimis aid impact your SEIS Allowance? 

Offering SEIS is a great way to attract investors as an early stage start-up. You can raise a maximum of £250,000 worth of SEIS funds in the 3 years following your-Company’s trading date, and in return you can offer potential investors a 50% income tax break, along with significant capital gains tax relief.

In this guide we will explain one aspect of the SEIS eligibility rules that can cause some confusion: de minimis aid.

If you’re looking to raise S-EIS investment you can easily apply for Advance Assurance and Compliance on SeedLegals.

What is de minimis aid?

Put simply, grants and subsidies given to businesses within the EU out of public money count as state aid. Most grants of state aid are approved aid - which just means that the EU has to give the go-ahead before funds are paid out.

If a business is granted EUR 200,000 or less in state aid over a 3-year period, this usually counts as de minimis, and can be paid without being approved by the EU (note, in certain sectors, the de minimis threshold is lower). Importantly, your aid provider should:

  1. Ask you about any de minimis aid you have received in the previous 3 years to check if you have hit your de minimis aid limit, and

  2. Tell you in writing (usually in your grant letter) that the aid you are getting counts as de minimis.

How does de minimis aid impact SEIS-eligible investment allowance?

If you've been granted de minimis aid within the last 3 years, the amount granted is deducted from your SEIS allowance.

For example, imagine your business has received £5,000 in de minimis aid in the last year...

  • Your starting point is the £250,000 SEIS Allowance

  • But then you take away your £5000 De minimis aid

  • And this gets your to your remaining SEIS allowance of £245,000

Given that the de minimis aid limit in most sectors is EUR 200,000 (approx. £173,000), a large de minimis aid grant could stop you from being able to raise any SEIS investment.

At this point you may be thinking... what if I issued SEIS shares and then received de minimis aid?

Well, importantly, only de minimis state aid received in the three years up to and including the date of the investment will be deducted from your starting £250k limit.

Essentially, you could issue all £250k worth of SEIS shares, and then accept de minimis aid, without facing any deductions, as it doesn’t impact your £12m EIS limit.

So, if you are intending to do an SEIS-eligible funding round, it is essential that:

  1. Before accepting any public grant money, you check whether this money counts as de minimis aid with the organisation or individuals granting it to you. This information should also be in your grant letter, and

  2. If you have already accepted public grant money that qualifies as de minimis aid, you need to make sure you understand what your remaining SEIS-eligible investment allowance is and how this may impact your funding plans.

You will need to disclose the value of your grant in both your Advance Assurance and Compliance applications.

What about Bounce Back Loans?

The Bounce Back Loan (BBL) Scheme was introduced in May 2020 to help small businesses affected by Coronavirus restrictions. Loans between £2000 and £50,000 are available under the scheme - with a loan maximum of 25% of annual turnover. The interest rate is 2.5% - but the Government pays for the first year of interest, not you.

We’ve been told by HMRC that in some circumstances Bounce Back Loans will be treated as de minimis aid and deduced from the SEIS £250k allowance - it all rests on whether your business is classified as a company in financial difficulty or not.

For more information about when BBLs count as de minimis aid, take a look at our article on Does a Bounce Back Loan count as de minimis aid against your available SEIS? — SeedLegals

Next Steps

If you are considering raising funds under the SEIS scheme you may want to get Advance Assurance from HMRC that your investment will be eligible for the scheme. This is not a requirement of eligibility, but many investors will want you to have Advanced Assurance and will be attracted to investment opportunities that have it.

After you have closed your round and received your investment, your will then need to apply for Compliance. This is when HMRC makes sure that all the correct steps have been followed and that if you have Advance Assurance your application was all correct. Once this has been done you can then give your investors their S-EIS certificates so they can go about claiming their tax relief.

At SeedLegals, we have designed a slick process for both SEIS Advance Assurance and Compliance that can automatically build both your HMRC applications forms for you by guiding you through a set of questions on our platform. Our team can review your applications to ensure they are optimised for SEIS-eligibility, and once you're ready, you can download and submit your applications to HMRC directly.

If you’re looking to raise under SEIS/EIS you can easily apply for SEIS/EIS Advance Assurance and Compliance on SeedLegals, and get in touch with our team if you have any questions about either process.

Questions? Book some time in with one of our S-EIS experts and we’d be happy to help.

Useful links on SEIS/EIS: