Enter Your E-mail

The Chartered Institute of Taxation points out that the normal route for most new businesses buying a standard company "off the shelf" risks immediate disqualification from the new Seed Enterprise Investment Scheme. (SEIS)

The SEIS has a lot to offer - such as up to 50%  Income Tax relief and potentially a complete exemption for Capital Gains Tax for other 2012/13 gains re-invested in a qualifying subscription. The only problem is that most brand new companies may not qualify, as the legislation currently stands.

The CIOT's Capital Gains Tax & Investment Income Sub-Committee has recently written to HM Revenue & Customs to point out that the "control and independence" requirements for the SEIS are so demanding that most companies bought from company formation agents will be permanently barred from the Scheme even before they've been acquired.

The SEIS legislation is based on that for the long-standing Enterprise Investment Scheme, which also requires that the company not be a subsidiary or under the control of another company. (In other words, the company which is to issue eligible shares must normally be either a 'stand-alone' company or the holding company of a group). However, the test under the original EIS legislation applies from the point that the EIS shares are issued, while the test under the new SEIS legislation applies from incorporation.

As most companies bought "off the shelf" will have a standard corporate shareholder holding the original share(s) from formation until it is bought by a customer, it will not be "independent" of any other company at the point of incorporation - and so will be disqualified.

The CIOT has therefore asked HMRC to provide clarity on the issue - one can only hope that common sense will prevail, and that the SEIS legislation will be amended to follow that for EIS. Although having said that, the Sub-Committee has also pointed out an apparent defect in the EIS guidance as well - see SEIS Conditions for Relief Subscriber Shares - CIOT Comments