One of the qualifying conditions for SEIS - EIS is that at the time at which you raise investment, the company has less than £200K (or £15m) in gross assets.
Gross assets is defined as:
"Immediately before the shares are issued, the total value of the company’s assets."
One question we often get asked - and which, surprisingly, isn't addressed in the many articles on the qualifying test - is whether the gross assets test includes the SEIS - EIS investment itself, or not.
The company is raising £250K:
- Alice is investing £100K SEIS
- Bob is investing £150K standard
The founders, correctly, ask Alice to send her SEIS investment first, and tell Bob to wait until the SEIS investment is in before sending his £150K.
But, as so often happens, Bob totally ignores that and immediately sends his £150K.
The founders are now worried: At the time immediately before the shares are issued there will be £250K in the company's bank account. Will they be in breach of the £200K gross asset test, and be ineligible for SEIS?
The good news is that this scenario is not a problem because the £200K SEIS test doesn't include the SEIS funds, at least in the case that the monies are paid just prior to the issue of the SEIS shares:
"HMRC will not regard the assets of a company immediately before the issue of the shares in question as including any advance payment received by the company in respect of that issue."
Read the full details on HMRC's website.
Please note that for the purpose of the SEIS Gross Asset Test, the calculation does include cash in the bank. This is usually the most significant factor. Effectively, the calculation is based on the value of property a company owns.
Gross assets are fixed tangible assets (like machinery) and current assets (cash in the bank or an asset that can be converted into cash within that financial year). In calculating the assets, it’s the full value of the asset which should be taken into account - you should not factor in depreciation.
Intangible assets (like Trademarks or Patents) are typically only included under the Gross Assets Test when they have been acquired by the company. Intangible assets developed by the company itself tend not to be included.
For the purpose of the gross asset test, ‘gross assets’ are fixed tangible assets and current assets, and the full value of these assets should be taken into account.
The £200K gross asset test doesn't include the SEIS money itself.
Of course this is only really helpful if the non-SEIS investor pays less than £200K sooner than they should have. If they had paid £300K ahead of the SEIS investments that would be a significant problem.
So, make sure to get all the SEIS money in first, and tell all the non-SEIS investors to wait for instructions before sending their money.
If you are uncertain whether your intangible assets should be included on your balance sheet, you'll need to check with your accountant.