Advance assurance for the seed scheme and EIS

Advance assurance is HMRC’s view, given before you issue shares, on whether a planned investment is likely to qualify for the Seed Enterprise Investment Scheme or EIS. It is optional, and it lets investors who are relying on the relief see that the company side of the scheme looks right before they commit.

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What advance assurance is

Investors under the seed scheme and EIS only get their relief after the shares are issued, the company has traded or spent the money, and HMRC has accepted the compliance statement. That is at least four months after they have paid, and can be much longer. Advance assurance brings part of the answer forward. Before the round, the company sets out what it plans to do, and HMRC says whether, on that description, the investment is likely to qualify.

The schemes do not require it. A company can issue shares and submit its compliance statement without ever applying. Investors relying on the relief can make assurance a condition of investing, and a fund that offers its own investors seed scheme or EIS relief will want to see it before it commits.

Assurance covers one proposed investment. A company planning a seed scheme round now and an EIS round next year applies for each. If the plan changes after assurance is given, the changes have to be reported when the compliance statement goes in, or the assurance no longer applies.

How to apply

  1. 1

    Prepare the documents

    Gather the business plan, forecasts, any accounts, the articles, shareholder agreements, draft investor documents and investor details.

  2. 2

    Apply online

    A director or the company secretary applies through HMRC’s online service. An agent can apply with a signed letter from a director dated within the last three months.

  3. 3

    Answer questions

    HMRC may ask about the trade, the share rights or the use of the money. An incomplete application is not considered, and gets no feedback.

  4. 4

    Receive the decision

    HMRC contacts the company with its decision. Share it with investors, then issue the shares on the terms described.

What goes in the application

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Naming your investors

A company that has not used a venture capital scheme before has to give details of its potential investors. For a seed scheme or EIS round raised directly, that means the name and address of each prospective investor.

If a fund manager or business promoter is raising the money, the company gives evidence that they have agreed to act for it. If the round is going through a crowdfunding platform, the evidence is that the platform has accepted the proposal. A company planning to list on AIM gives the name and registration number of its nominated adviser.

The practical effect is that you apply once you have firm interest from investors, a fund or a platform. Take the plan to investors, gather their names, apply, and close the round once assurance arrives.

  • Raising directly: each prospective investor’s name and address
  • Through a fund or promoter: evidence they act for you
  • Through a crowdfunding platform: evidence it has accepted the proposal
  • Planning an AIM listing: the nominated adviser’s name and registration number

What assurance covers

The company and the shares
HMRC’s view that, on the facts in the application, certain conditions of the scheme are likely to be met.
The investors
Outside its scope. Assurance does not say whether a particular investor meets the conditions, such as the 30% connection test or the rules on employees and paid directors.
Endorsement
HMRC says assurance should not be taken as a general endorsement of the company or as an indication of how the investment will perform.
Later changes
Report any change with the compliance statement. Otherwise the assurance no longer applies.
The compliance statement
Still needed. Investors cannot claim until the company has submitted its statement and issued their certificates.
Each investment
Every proposed investment needs its own application.

Preparing a strong application

Describe the trade in plain words, and say what share of revenue each activity brings or will bring. If any part of it is an excluded activity, such as leasing equipment or providing financial services, say how large it is against the 20% test.

Show the risk-to-capital condition from the business plan itself: a plan to grow the trade, hire people and enter new markets, with a forecast that shows the investment being spent on that growth. A plan that puts investors’ money into assets that hold their value, or that offers investors a fixed return or an early exit, invites a refusal.

Make the share rights match the scheme. The articles you send should give the new shares no preferential right to assets on a winding up and no right of redemption, and the draft subscription documents should give no investor a protection the others do not get. If a venture fund in the same round wants preference shares, say so, and show which class the scheme investors will hold.

Leave time for the answer. HMRC does not publish a timescale for advance assurance, so plan the round so that no scheme shares are issued until the reply is in. An accountant or lawyer who works with the schemes can prepare and submit the application as your agent. Getting investor ready covers the documents that go into it: the pitch deck, the forecast, the articles and a clean cap table.

Questions people ask

Is advance assurance required for the seed scheme or EIS?

No. It is optional, and a company can raise money under either scheme and submit its compliance statement without it. Its value is to investors: it shows them, before they pay, that HMRC thinks the company side of the scheme is likely to be met. Investors relying on the relief can make it a condition of investing.

How long does advance assurance take?

HMRC does not publish a timescale on its guidance; it says only that it will contact you when it has made a decision. A complete application avoids the delay of questions going back and forth, and an incomplete one is not considered at all. Plan the round so that no scheme shares are issued before the reply arrives.

Do I need named investors to apply for advance assurance?

If the company has not used a venture capital scheme before, yes. For a round raised directly, give the name and address of each prospective investor. If a fund manager or promoter is raising the money, give evidence that they have agreed to act for you; for a crowdfunding round, evidence that the platform has accepted the proposal. A company already on AIM does not need to give investor information.

Does advance assurance guarantee investors will get relief?

No. It covers only certain conditions of the scheme, on the facts in the application, and it says nothing about whether each investor qualifies. Relief depends on the company keeping to the rules for three years, submitting its compliance statement and issuing certificates, and on each investor meeting the investor conditions. Changes to the plan must be reported or the assurance stops applying.

How long is advance assurance valid?

The guidance gives no fixed period. Assurance relates to the proposed investment described in the application, and each proposed investment needs its own application. If the round you close differs from the one described, report the differences when you submit the compliance statement. If the plan has changed a great deal, apply again before issuing the shares.

Can my accountant apply for advance assurance?

Yes. An agent can apply for the company if a director signs a letter authorising them, dated within the last three months. A director or the company secretary can also apply directly through HMRC’s online service, which needs a sign-in.

Finance is subject to status and to the lender’s terms. A personal guarantee makes you liable for the company’s debt if it does not repay, and it can be enforced against your own assets, including your home. Nothing here is a personal recommendation.

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