I advised an accountancy client on a proposed company start-up for a recreational sport venture. It was proposed to raise money under both the Seed Enterprise Investment Scheme (SEIS) and, as the limit for SEIS investments would be exceeded, also under EIS. In addition to advising on the detailed technical conditions for SEIS/EIS i.e. ‘qualifying trade’, size of company, spending of the money, limits for relief etc. I also helped to micro-manage the process of the issue of the shares. This is very important because the shares must be subscribed for in cash and must be fully paid up on issue, so the shares must not be issued prior to the money being invested but must be issued the moment the cash is received. Otherwise there is a danger that HMRC may regard this as creating a debt owed to the investor and the issue of shares in exchange for debt is not a subscription ‘in cash’.
This ‘Catch 22’ situation was managed successfully but I had also advised on two occasions that the SEIS shares must be issued prior to the EIS shares but the company issued on the same day which jeopardised relief for the SEIS investment. Fortunately the mistake was spotted in time and we were able to rectify the situation but this case shows that great care is required in relation to technical and procedural matters with these schemes or there is a risk that relief will be lost.
