How Does SEIS Work? The Scheme, Step by Step
The full SEIS sequence from company qualification to investor relief: assurance, the raise, the spending gate, SEIS1 to SEIS3, and the claim.
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How does SEIS work? Like a relay. The company qualifies and raises; HMRC checks and authorises; the investor claims and holds. Nobody gets their reward until their leg of the race is run, which is why the scheme confuses people who expect tax relief to arrive with the receipt. Here is the whole course, step by step, with the timings that surprise first-timers.
How does SEIS work? The three runners
A company that meets the tests: under three years trading, under 25 staff, under £350,000 of assets, raising within its £250,000 lifetime cap. An investor subscribing cash for new ordinary shares, unconnected and inside the £200,000 annual limit. And HMRC, whose job is to confirm the first two did what they said. The rules for each live in rules and limits; this page is about the sequence.
Step 1: the company checks itself, then asks HMRC
Sensible companies start with eligibility, then apply for advance assurance: an informal opinion from HMRC, based on the business plan and the proposed raise, that the shares should qualify. It typically takes a few weeks and is not a guarantee, but investors treat it as the entry ticket to a serious conversation.
Step 2: money in, shares out
Investors pay cash; the company issues new ordinary shares, dated and registered properly. This moment matters more than any other piece of admin in the scheme: the issue date starts the three-year clock, fixes which tax year the investor claims in, and is when the size tests are measured. Money that sits around before shares are issued, or instruments that are really loans, are where rounds quietly go wrong.
Step 3: the company trades and spends
Now the scheme deliberately slows down. Before anything can be certified, the company must have traded for at least four months and spent at least 70% of the SEIS money on the qualifying activity. The logic is simple: HMRC certifies real trading companies, not bank balances.
Step 4: SEIS1, SEIS2, SEIS3
Three forms, one relay baton. The company files its compliance statement, SEIS1, declaring the conditions met. HMRC reviews and, satisfied, sends the company an authorisation, SEIS2, with a unique investment reference. The company then issues each investor a certificate, SEIS3, carrying that reference. No SEIS3, no claim; it is the single document the whole scheme funnels through.
Step 5: the investor claims
With the SEIS3, the investor claims 50% income tax relief through Self Assessment, or in-year through PAYE, and elects any carry back to the previous tax year. Reinvestment relief against a capital gain is claimed alongside. The mechanics, deadlines included, are walked through in how to claim SEIS relief, and what each relief is worth in the reliefs guide.
Step 6: three quiet years
The reliefs become permanent by everyone behaving for three years from issue. The investor does not sell, does not become connected, does not take value out. The company keeps qualifying: same kind of trade, no listing, no takeover, no returning capital. Break the conditions and relief is clawed back; hold them and, from the third anniversary, gains on the shares are CGT-free and the story ends as designed.
The realistic timeline
| Stage | Typical timing |
|---|---|
| Advance assurance | A few weeks before the raise |
| Raise and share issue | Day 0 |
| Trading and 70% spend | Months 1 to 4 or later |
| SEIS1 filed, SEIS2 back, SEIS3 out | Commonly months 4 to 9 |
| Investor claims relief | Next Self Assessment, or in-year via PAYE |
| Reliefs become final | Third anniversary of issue |
Why the scheme is built this way
Every stage answers a mischief. Assurance-first stops doomed raises. Shares-for-cash stops disguised loans. The four-month and 70% gates stop paper companies. The certificate chain gives HMRC one audit trail, and the three-year tail stops the whole thing being a quick tax trick. Understand the why and the sequence stops feeling like bureaucracy and starts feeling like the price of a 50% relief.
Where the timeline stretches
The four-to-nine-month rhythm assumes everyone does their part promptly, and three delays account for most exceptions. HMRC processing queues move with the seasons, lengthening around January and after Budgets. Incomplete SEIS1 filings bounce and rejoin the back of the queue, which is why the compliance statement deserves an accountant’s eyes rather than a founder’s midnight. And founder administration, the unissued certificates sitting in a drawer, remains the most common and least forgivable stretch: the relief exists from HMRC’s authorisation, but investors cannot touch it until the SEIS3 lands in their inbox.
Following the money: what the 70% must look like
The spending condition is qualitative as well as arithmetic. The 70% must be employed for the qualifying business activity: salaries, product development, marketing, stock, the ordinary costs of growing the trade. Spending that undermines it includes repaying loans, buying investments, and anything that looks like parking the cash. Companies evidence the condition with a simple spend analysis mapped to the raise, and wise founders keep it current from month one rather than reconstructing it at filing time.
Common questions
How does SEIS work for investors?
You subscribe cash for new shares in a qualifying company, wait for the company to trade four months and spend 70% of the raise, receive an SEIS3 certificate once HMRC authorises it, claim 50% relief through your tax return, and hold the shares for three years.
How does SEIS work for a company?
Check eligibility, get advance assurance, issue new ordinary shares for cash, trade and spend the money on the qualifying activity, file SEIS1, receive SEIS2, and issue SEIS3 certificates to investors.
How long does the whole SEIS process take?
From raise to certificate is commonly four to nine months, and the reliefs become final three years after the share issue.
What are SEIS1, SEIS2 and SEIS3?
SEIS1 is the compliance statement, SEIS2 is the HMRC authorisation with the investment reference, and SEIS3 is the certificate investors use to claim.
