You get one advance assurance application per round

The mistakes that cost founders relief, and when they happen

Most SEIS and EIS problems are not caused by founders misunderstanding the rules. They are caused by founders encountering the rules too late, at a point where the decision that broke qualification was made months earlier and cannot be unwound.

The schemes are unusually unforgiving. There is no reasonable excuse provision, no discretion for HMRC to accept that the intention was right, and very little scope to correct a share issue after the event. A company that issues its shares in the wrong order has not made a paperwork error. It has permanently lost relief for those investors.

What follows is organised by when each decision gets made, because that is how the problems actually arrive.

Before you incorporate

The founding share allotment can disqualify your own relief. Founders often assume the schemes are only for third party investors and that their own shares are irrelevant. Under SEIS a paid director can qualify. Under EIS a director generally cannot, unless they were unconnected with the company when the shares were issued and only became a director afterwards, which is the business angel exception. Whether a founder holds qualifying shares is settled at incorporation and is close to impossible to fix later.

The 30 per cent limit counts associates. No investor can hold more than 30 per cent of the ordinary share capital or voting rights. Associates count towards that figure, and the definition is wider than founders expect: a spouse, a business partner, a parent, a trust of which the investor is a beneficiary. Cap tables that look compliant on their face frequently are not once associates are aggregated.

Watch what the company did before it started trading. SEIS requires the company to have been carrying on its new qualifying trade for less than three years at the date of share issue. Where the trade was previously carried on by someone else, HMRC looks at when that trade actually began rather than when your company took it over.

Before the round

Understand what advance assurance is worth. It confirms HMRC's view on the facts you gave it at that moment. If those facts change, or the application was incomplete, it does not bind HMRC. Relief is secured only when the shares are issued, the funds are spent on the qualifying trade, and the compliance statement is accepted. What it does buy you is the ability to answer an investor's question with a document rather than an opinion, which in a live round is worth a great deal.

Check the trade properly, including subsidiaries. Excluded activities include banking and financial services, property development and dealing in land, and leasing. Licensing intellectual property can render a company ineligible depending on structure. Where activities are mixed, the test is whether excluded activities are a substantial part of the business, which HMRC takes as more than 20 per cent. Subsidiaries come into the assessment, so groups need reviewing as a whole.

Some sectors need the case made explicitly. Crypto, blockchain and fintech businesses are not excluded as such, but they sit close enough to financial services that HMRC will look hard at where the value actually comes from. A company building technology it licenses or sells is in a different position from one holding, trading or lending assets. The distinction needs to be drawn clearly in the covering letter rather than left for HMRC to infer.

Do not assume an advance subscription agreement qualifies. Relief is available on equity, not loans, including convertible loans. ASAs can qualify but only where drafted to HMRC's expectations: a longstop date within roughly six months, conversion into equity only with no cash repayment in any circumstances, no interest, no ability to vary or cancel, and none of the provisions you would find in a loan document. Templates lightly amended often fail on one of these, and by the time anyone checks, the money has been taken.

Grants may have used up your SEIS headroom. SEIS is de minimis state aid, and so are a number of grants early stage companies apply for. Any de minimis funding already taken counts towards the £250,000 ceiling.

At the point shares are issued

The shares must be ordinary, full risk and fully paid in cash. No preferential dividend rights, no liquidation preference, no redemption. The trap is that preference gets created inadvertently, usually when a new class with lesser rights is introduced. Deferred shares are the usual culprit: introducing a class ranking below the ordinary shares can elevate those ordinary shares into a preferential position, which breaks qualification. Articles and shareholders' agreements should be reviewed by someone who knows the schemes, not only by a corporate lawyer who does not.

Never file an EIS compliance statement before using your SEIS entitlement. Once submitted it cannot be withdrawn, even where filed in error, and any SEIS relief is then denied. This is one of a small number of genuinely irreversible steps.

After the money is in

The compliance statement has its own timing rule. The company cannot submit SEIS1 or EIS1 until it has either traded for four months or spent 70 per cent of the funds raised. Applying earlier produces a rejection. The trading date is not always the date of the first invoice.

Monitor how the funds are spent. Money must be used for the purposes of the qualifying trade within two years. This is simple for a company with one account and no revenue and much harder once the company generates income and money is commingled. A spending record kept from the outset beats a reconstruction under enquiry.

Take advice before any significant transaction. Several ordinary looking transactions carry clawback risk:

• Share buybacks. Buying back non-EIS shares from a non-EIS shareholder within twelve months before or three months after an EIS share issue claws back relief for the remaining EIS shareholders. Founders buying out an early leaver trigger this without knowing.
• Value received by an investor. Relief may be reduced or withdrawn, and the definition catches transactions you would not expect, including the company repaying a loan the investor previously made to it.
• Share for share exchanges and joint ventures. These can break requirements around control of subsidiaries and qualifying trade, particularly where a holding company is inserted.

The three year clock affects exit timing. If the company is sold within three years, investors lose income tax relief and it is clawed back. The clock runs from share issue, or from the date trading began if later, not from incorporation. Worth checking before signing heads of terms.

The current limits

The EIS thresholds increased substantially from 6 April 2026, and much of the guidance still circulating online has not been updated.

Relief under both schemes can be carried back to the previous tax year, which often determines whether an investor commits before or after 5 April. The increased EIS limits do not apply to certain specified companies, including those registered in Northern Ireland, which remain on the previous thresholds.

Where this leaves you

Almost everything above is cheap to fix before shares are issued and impossible to fix afterwards. The cost of getting it wrong is not usually borne by the company either. It is borne by the investors who backed you on the understanding that relief would be available, which makes it a relationship problem as much as a tax one.

If you are raising in the next six months, the useful time to have this reviewed is now, while the cap table, the articles and the timetable are all still capable of being changed.