How to claim EIS and SEIS tax relief

Earlier this year, I made a small investment in a company called Graphene Composite through the crowdfunding platform Crowdcube. Graphene Composite (GC) is a nano-materials technology company that combines graphene, aerogels and other materials to produce a range of composites that are extremely light, and yet extremely resistant. There are many applications for this technology.  The most obvious one might be the production of a light bulletproof vest that fits in a school bag. 

As a new player in the crowdfunding scene, I invested a small amount, which is less than £10,000. GC used the Enterprise Investment Scheme to raise funds in this round, which meant that investors were potentially entitled to tax relief. 

If you need a refresher on the various investment schemes available to start-ups and early-stage companies, look no further! Here is a description of the main venture capital schemes. 

How do I claim tax relief on my investment?

Step 1: Wait for your EIS3 or SEIS3 form

You cannot claim tax relief until you have received an EIS3 or SEIS3 form. You will notice that there is a delay between the moment your investment is completed and the moment you receive the form.

The company you invested in will issue the form but cannot do so until it has been trading for at least 4 months. Then, you must remember that the company is a start-up and resources are scarce. There is probably only one finance director in a position to issue the certificates to a large number of investors. 

As a result, it may easily take 12 weeks for you to receive the form. Be patient and do not stress out. Remember that you do not need to receive the form prior to the end of the tax year to claim tax relief. 

If you do not hear from the company or the crowdfunding platform within 6 months of the closing of your investment, then reach out to them to sort out the matter. There might be a simple explanation for the delay. 

Note: if you invested in an EIS/SEIS fund, then you may receive multiple certificates. Typically, there will be one certificate for each company the fund invested in. 

Step 2: What tax relief can you claim?

After you receive the certificate, it is time to determine what tax relief you want to claim. This involves understanding the various schemes and their respective benefits. There is Income Tax Relief and Capital Gains Tax Relief. 

Income Tax Relief

Below a summary of the income tax relief available for the various schemes. 

For EIS and SEIS, you can either claim relief in:

• the tax year you make the investment;
• the tax year before you make the investment (if you choose to treat some or all of the investment as being made the previous year).

Note: the tax year(s) in which an investor can claim tax relief is based on the year in which the EIS/SEIS shares are issued. Therefore, the date of the certificate is irrelevant. 

Obviously, you can only claim tax relief against the amount of Income Tax to be paid in the UK. 

It is incredibly important to claim income tax relief as soon as possible. First, the sooner you claim, the sooner the money will be in your account. Second, you cannot carry forward unused Income Tax Relief to future tax years. Third, failure to claim Income Tax Relief may cause issues in claiming Capital Gains tax relief in the future. 

Capital Gains Tax Relief

The table below summarizes Capital Gains Tax relief. 

To claim Capital Gains Tax relief on a typical EIS investment, you must have claimed Income Tax Relief and held the shares for at least three years. 

In most instances, you will claim Income Tax Relief as soon as you receive the EIS3/SEIS3 certificate. Unless the amount of tax relief received is greater than the expected amount of income tax to be paid, which is highly unlikely to happen, there really is no reason to wait.

Step 3: submit the tax relief claim

There are three options to submit the tax relief claim.

Option 1: outsource the claim to your accountant

If you are starting to make significant EIS/SEIS investments, chances are that you have an accountant to file your tax returns. While filing a self-assessment form when the only source of income is your salary can be straightforward, it is harder when you add EIS/SEIS investments and income from rental properties.

If you are lucky to have hired someone, then all you need to do is scan and email form EIS3/SEIS3 to your tax advisor. The form EIS3 will be annexed to your tax return.

The tax advisor will incorporate this in your tax return. If your advisor has already filed your self-assessment, do not worry. He or she will amend the tax return and re-send the entire filing for your review. You may be asked to provide your bank details if HMRC owes you money as a result of the relief.

Option 2: claim tax relief online

The second option is to claim online when completing your self-assessment.

• Log in online on the HMRC sign-in webpage
• Section 3 “Tailor your returns”: answer yes to the question on other other tax reliefs, which includes venture capital
• Section 4 “Fill in your returns”: submit the total amount of all EIS/SEIS investments for which you want to claim tax relief. Provide details for each investment. Details should include names of companies, investment amounts, dates on which the shares were issued, name of the HMRC office that approved the EIS/SEIS scheme. This should be sufficient but feel free to include other references.

You do not have to submit the EIS3/SEIS3 form. You must keep it in a safe place if HMRC wants to see it.

Option 3: claim tax relief on your paper tax return

The third option is to claim tax relief through your paper tax return. Old school but it still works!

• Download Form SA101 (the “Additional Information” sheet)
• Box 2 “Other reliefs” section: write the total amount of your EIS/SEIS investments for which you want to claim tax relief

• Box 21: give details for each EIS investment. The details are the same as if you were filing online. You should therefore at least include the names of the companies, investment amounts, dates on which the shares were issued, name of the HMRC office that approved the EIS/SEIS scheme.

Option 4: fill out the EIS3 Form and send it to HMRC

One other way to claim for tax relief is to complete the EIS3 Form (also application to SEIS3 Forms) and send it to your local HMRC office. You will need to fill out pages 3 and 4 of the form.

I have never used this method to claim for tax relief. Actually, for a while, I wondered why this option was given as most people would usually claim as soon as possible.

There are, however, specific situations where sending the EIS3 Form itself might be more relevant. This is not tax advice and those situations tend to be more complex, and therefore would require tax advice.

• Claiming tax relief against a previous year: if you want to carry-back some of the relief because you did not receive the EIS3 form on time in the previous tax year
• PAYE adjustment: if you receive the EIS3 form early in the tax year, you may be able to receive the tax relief through an adjustment of your PAYE code
• Deferral relief: if you want to claim deferral relief and income tax relief (a more unusual case)
• No self-assessment: if you are not required to file for self-assessment, then you will need to send the completed EIS3 form.

Step 4: receive the tax relief

The tax relief claimed will reduce the amount of tax that must be paid to HMRC. Assume you owned £5,000 in taxes. You invested £1,000 in a qualifying EIS scheme and are therefore entitled to receive tax relief in an amount of £300. After applying the tax relief, you only owe £4,700.

If you owe no taxes or have already paid too much income tax, then HMRC will repay the excess directly into your bank account or by cheque. Personally, I am only familiar with the bank account repayment option.

None of the above constitutes tax advice. You should consult a professional. Hopefully, this will be a useful guide and will help you in asking the right questions!