Yes, but far less often than the headline suggests, and the reason has nothing to do with the rule most founders have heard about.
The point that gets repeated is that SEIS allows a paid director to qualify. That is correct, and it is a real difference from EIS, where a director generally cannot claim unless they were unconnected with the company when the shares were issued and only became a director afterwards. So on the directorship question, founders are in a better position under SEIS than they expect.
The problem is a different condition entirely, and it disqualifies most founders before the directorship point is ever reached.
The 30 per cent rule is what actually stops you
No investor can claim SEIS relief if they, together with their associates, hold more than 30 per cent of the company's ordinary share capital, voting rights, or rights to assets on a winding up.
A sole founder holds 100 per cent. Two equal founders hold 50 per cent each. Three equal founders hold a third each. In every one of those cases, no founder can claim SEIS on their own subscription, no matter how the shares are structured or when they are issued.
It starts to work at four or more founders with reasonably even splits, or on a founding team that has already been diluted below the threshold by an earlier round.
Associates are counted, and the definition is wide
The test aggregates your holding with those of your associates: a spouse or civil partner, parents and grandparents, children and grandchildren, business partners, and trustees of a settlement where you are the settlor or a beneficiary.
Splitting a holding with a spouse to get each of you under 30 per cent does not work, because the holdings are added together. And a founder comfortably under 30 per cent personally can still fail if a parent or business partner also holds shares.
Note what is not on the list. Siblings are not associates for this purpose, and nor are unmarried partners.
Employees cannot claim, directors can
Under SEIS, being a director does not make you connected with the company. Being an employee does, and an employee cannot claim relief.
For most founders this is academic, since they are directors. It matters for early team members who took shares, and for founders who are not on the board. A technical co-founder who is employed but not appointed as a director is disqualified, where the same person as a director would not be.
The shares themselves have to qualify
Even where the 30 per cent test is passed, the subscription has to meet the same conditions as any other SEIS investment:
- New ordinary shares, subscribed for in cash and fully paid at the time of issue
- Full risk, with no preferential rights to dividends, no liquidation preference and no redemption rights
- Issued when the company has been carrying on its new qualifying trade for less than three years
- Issued before any EIS shares
Founder shares issued at incorporation at nominal value are usually a poor fit, not because they fail these tests but because the relief is worth so little. Fifty per cent of a subscription of a few hundred pounds is not worth structuring a round around.
Where this becomes genuinely valuable is a founder putting real money in later, alongside external investors and at the same price, at a point where their holding has fallen below 30 per cent.
Two situations where it works well
Works cleanly
Each subscribes for further shares in the seed round and claims 50 per cent income tax relief on their own money. The relief is real and the mechanics are straightforward.
Possible, but check the clock
A founder taking their pro rata may now be under 30 per cent. This needs checking against the SEIS trading window, which will often have closed by then, in which case EIS becomes the question and EIS treats directors much less generously.
No, and structuring will not fix it
Attempting to engineer around the 30 per cent test by parking shares with family members will fail on the associate rules, and using a nominee will fail more seriously than that.
One wider point
Founder SEIS is a nice benefit where it happens to be available. It is not a reason to restructure a cap table, and a cap table designed around a tax relief rather than around the business tends to cause more problems at the next round than the relief was worth.
Worth checking if any of these apply
- You are one of four or more founders with a reasonably even split
- Your holding has fallen below 30 per cent after an earlier round
- You are about to put meaningful personal money into your own company
- You are a co-founder who is employed but not a director
The check itself is quick. It is the cap table, the associate holdings and the trading date, and those three things settle it.
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This article sets out the general position and is not advice on any particular set of facts. Thresholds and rates are those applying at the date of publication.