The Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) are the two pillars of the UK government's policy of channelling private capital into early-stage companies. For UK SaaS founders raising from angels or specialist EIS funds, eligibility is often the difference between closing a round and not. The schemes were modernised at Spring Budget 2023 with materially expanded limits, and both schemes are now confirmed to extend beyond their original sunset date.
The headline numbers
For SEIS (from April 2023 onwards):
- £250,000 per company lifetime SEIS investment limit (raised from £150,000).
- £200,000 per investor per tax year (raised from £100,000).
- 50% income tax relief for investors.
- £350,000 gross assets test at the date of share issue (raised from £200,000).
- Trading for less than three years at the date of issue.
- Fewer than 25 employees at the date of issue.
For EIS:
- £12m company lifetime EIS limit (£20m for knowledge-intensive companies).
- £1m per investor per tax year (£2m if at least £1m is invested in knowledge-intensive companies).
- 30% income tax relief for investors.
- £15m gross assets at the date of issue (£16m immediately after).
- Trading for less than seven years at the date of issue (10 years for knowledge-intensive).
- Fewer than 250 employees at the date of issue (500 for knowledge-intensive).
Why SaaS founders should care
For most UK angel investors, SEIS and EIS status are non-negotiable. The combination of upfront income tax relief (50% under SEIS, 30% under EIS), CGT exemption on gains from qualifying shares held for at least three years, and loss relief if the investment goes to zero, makes a SEIS/EIS investment dramatically more attractive on a risk-adjusted basis than an investment in a non-qualifying company. A SaaS startup that cannot offer SEIS or EIS will lose a meaningful portion of its potential angel base.
The qualifying trade test
Most SaaS businesses qualify, but the trade tests exclude certain activities. Among the excluded categories are dealing in land, dealing in financial instruments, banking, insurance, leasing, legal and accountancy services, and receiving royalties or licence fees (unless these are connected with the company's own R&D). SaaS businesses are generally fine on the trade test because the underlying activity is the provision of software services. The licence fee carve-out can be relevant for businesses with significant pure-licensing revenue.
The "risk-to-capital" condition
The risk-to-capital condition, in force since 2018, requires the company to be carrying out a genuine entrepreneurial activity with risk of loss of capital, rather than a structured arrangement designed to deliver low-risk returns to investors. The vast majority of genuine SaaS startups meet this test naturally. HMRC has used the condition to deny relief in arrangements where the commercial substance was thin or where capital preservation features were embedded.
Advance assurance
Advance assurance is HMRC's process for confirming, before issue, that a planned investment is expected to qualify. It is not legally required (companies can issue shares and then claim relief through compliance statements), but in practice most investors require advance assurance before committing. The process involves submitting:
- A business plan and financial forecasts.
- Details of the share issue and target investors.
- Information about the company's trade, structure and history.
- Confirmation of the conditions met for SEIS or EIS.
Advance assurance turnaround times vary but typically run from a few weeks to a few months. Common reasons for delay or rejection include unclear trade activity, gaps in the business plan and risk-to-capital concerns.
SEIS first, EIS second
Most UK SaaS startups use SEIS for the first £250,000 of qualifying capital, then move to EIS for subsequent rounds. The SEIS round must be completed (shares issued and SEIS3 forms issued) before the EIS round, with care taken on the seven-day rule between SEIS and EIS share issues from the same investor.
What can break SEIS/EIS
- Substantial preferential rights: SEIS/EIS shares must be ordinary shares with no preferential rights to dividends, assets or capital. A liquidation preference attached to the SEIS/EIS shares can disqualify the round. This is one of the most common deal-killers and requires careful term sheet review.
- Convertible loan notes: Loan notes do not qualify, although they can be structured to convert into qualifying equity at a future round, with the assurance and qualification tested at conversion.
- Receiving "value": An investor receiving non-cash value back from the company within the holding period (such as personal expense payments) can lose relief.
- Sale or wind-down within three years: Investors lose relief if they dispose of qualifying shares within three years of issue.
Knowledge-intensive companies
Many UK SaaS startups qualify as knowledge-intensive (KIC) under EIS, which unlocks higher limits (£20m company, £2m individual where at least £1m goes to KICs) and longer eligibility windows. The KIC tests include criteria around R&D and innovation spend (a minimum percentage of operating costs in recent years) and skilled-employee headcount. KIC qualification often needs careful documentation and modelling.
How we help
PushDigits prepares advance assurance applications, manages SEIS3 and EIS3 issuance, and advises SaaS founders on round structures that preserve relief. We work alongside your legal advisers on term sheets where preferences and rights need to be EIS-compatible. See our tax planning and business advisory pages, or book a consultation.