The Seed Enterprise Investment Scheme (“SEIS”) and the new UK subsidy control regime

Stephen Oates

Stephen Oates

Tax Director and Head of Entrepreneurial Taxes

It is well understood that prior to the UK leaving the EU (effective 31 December 2020), that SEIS was a de-minimis state aid. 

The state aid rules meant that a company could receive a maximum of €200,000 of de-minimis aid in the current and previous two fiscal years. At that time, the maximum SEIS investment a company could raise was £150,000 and companies often found that either their ability to raise SEIS investment was restricted because of other de-minimis aid awards or having raised the maximum SEIS investment, they were only able to accept a very small amount of other de-minimis aid support.

Since leaving the EU and the introduction of the new UK Subsidy Control Act 2022, the position has been less clear. The UK left the EU on 31 December 2020 and the new regime came into effect on 4 January 2023. Between 1 January 2021 and 4 January 2023, the UK followed the World Trade Organisation (WTO) Agreement on Subsidies and Countervailing Measures (SCM) and the EU-UK Trade & Co-operation Agreement (TCA).

The 2022 Act introduced Minimal Financial Assistance (“MFA”). MFA allows public authorities to award low value subsidies without needing to comply with the majority of the subsidy control requirements. This is similar to the concept of de-minimis aid as defined within the EU rules. The financial threshold for MFA is a maximum of £315,000 in the current and previous two financial years and this higher threshold is very welcome.

Since 6 April 2023, the maximum amount that a company can raise under SEIS was increased to £250,000, but a key question has been whether any MFA awards would restrict that amount.

HMRC have clarified that SEIS is a ‘legacy subsidy’ and remains a de-minimis aid and is not MFA. This means that any MFA awards will not impact on the maximum amount that a company can raise under SEIS. This is good news and welcome clarification, however companies do still need to consider any de-minimis aid received in the 3-year period up to the date of the proposed SEIS investment, as the total of this aid will restrict the maximum that can be raised under SEIS. In time, we would expect that de-minimis aid will become irrelevant for the majority of UK businesses (businesses based in Northern Ireland are still subject to the EU regime in certain circumstances) and that small subsidies will be within the MFA regime, however, it is possible that as of May 2024, a UK business may have received de-minimis aid within the last 36-months, which would restrict the amount they can raise under SEIS if they otherwise qualify for that scheme.

The following example sets out the position:

A company is planning to raise £500,000 of equity investment on 31st May 2024. The company meets the requirements of a new qualifying trade for the purposes of SEIS. They have previously received the following grants:

  • July 2022 £30,000 de-minimis;
  • December 2023 £75,000 MFA

For the purposes of calculating the maximum amount they can raise under SEIS, the December 2023 MFA award can be ignored. The July 2022 de-minimis aid falls within the 36-months prior to the date of the SEIS investment and accordingly the maximum amount that the company can raise under SEIS is restricted to £220,000. The £280,000 balance of the equity funding would require to be raised as EIS. This would require the company to issue the SEIS shares at least one day prior to the EIS shares.

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