Finding launch funding is one of the key considerations of starting a business. You may wish to raise capital from investors by utilising the government’s Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), which provide tax breaks to investors who back small businesses. In order to pursue this strategy successfully, avoid making the following seven mistakes.

1. Seven Mistakes to Avoid When Raising Start-Up Funding
Finding launch fundingis one of the key considerationsof starting a business.You may wish to raise
capital from investors by utilising the government’s Enterprise Investment Scheme (EIS) and Seed
Enterprise Investment Scheme (SEIS), which provide tax breaks to investors who back small
businesses.Inordertopursue thisstrategysuccessfully,avoidmakingthe followingseven mistakes.
Failing to assess your circumstances
Before applying for these governmental investment schemes, first assess whether they are right for
your business’ circumstances. Yes, qualifying for either EIS or SEIS can make your company more
attractive to investors, but these programmes can impose restrictions on how your firm operates in
future.If applying fortheseschemes willpreventyoufromsteeringyour companyinthe directionyou
believe it needs to take in order to succeed, they could be more harmful than beneficial.
Not planning for Advance Insurance
You can pre-checkwhetheryourfirm will qualifyforEISor SEIS by applyingfor‘Advance Assurance,’
whichis based on intendedtrade anduse of funds, from HM Revenue andCustoms(HMRC). It iskey
thatyouseekassurance beforeyouapproachinvestors.If youfailto doso,youcouldlose vital capital,
as HMRC is currently taking up to two months to process Advance Assurance applications.
Turner Little would advise you to apply for Advance Assurance for EIS and SEIS simultaneously.We
should also note that with careful structuring, you can attain financing via both EIS and SEIS at the
same time, rather than waiting for SEIS capital to run out, before applying for EIS investment.
Assuming assurance is a guarantee
With an Advance Assurance,HMRCare basically sayingthatbasedon the facts, theybelieve thatitis
likely that you will qualify for the EIS and SEIS schemes. But Advance Assurance cannot be regarded
as a guarantee, so do not base your company’s investment strategy around it. Submit as much
information as possible, so HMRC can send you an accurate Advance Assurance. It is advisable to
include an investor memorandum and financial models with your applications.
It is important to note that in some cases, the form on HMRC’s website may not supply withall the
relevantinformationneededtoapplyforEISandSEISrelief successfully.Itisvitalthatyouaccompany
your application with a cover letter, detailing precisely how your company intends to operate. This
can allow you to illustrate comprehensively why you should qualify for the EIS and SEIS schemes.
Failing to track legislative changes
There are no fixeddateson Advance Assurances.Butthe governmentupdatesEISandSEISlegislation
regularly and it is vital that you keep track of these developments. If there is a long delay between
gainingassurance and issuingsharesand the relevantlegislationchanges,youmayno longerqualify
for EIS of SEIS relief, rendering you application useless.
We should also note that if you gained Advance Assurance a long time ago e.g. over a year, some
institutional investors will not invest through the EIS scheme, due to the fact that legislation can
change. Therefore,it is key that if you received assurance from HMRC a long time ago, that you ask
the governmental agency to confirm whether your firm still qualifies for EIS relief.
Issuing shares before receiving money

2. BusinessAdvice portal Start-Upswrites that the most common reasoninvestmentsdonotqualify, is
that the firm has issued the shares,before theyreceivedthe money. It is vital that you do not issue
shares based on the expectation that you will receive cash. Also, avoid releasing shares when you
incorporate your company, if you have not yet set up a bank account to handle the money. As
registered bank intermediaries, Turner Little can advise you on setting up UK bank accounts.
Not planning for certificates
AfterreceivingAdvance Assurance,youwill needtoinformHMRCof the investmentsmade viaforms
(S)EIS1. The agency will then send you blank (S)EIS 3 certificates to fill out and give to investors. Do
not wait for a long period of time before applying for these certificates. Without them, investors
cannot claimtax relief ontheirtax returns,soit is keythat youapplyfor these certificatesassoonas
feasibly possible.
We should note that sometimes, it can take HMRC up to two months to process the necessary tax
certificates.Therefore,EISand SEIS tax relief cancarriedback by a year. Typicallyinvestorswill want
to receive the necessary certificates well before the 31 January tax return filing deadline.
Letting your qualifying status lapse
In order to qualify for EIS or SEIS, your firm must meet the necessary requirements for three years
aftereitherthe issuance of sharesorthe commencementof trading.If yourcircumstanceschange e.g.
you sell the firm within this three year period, you may no longer qualify. In these cases, you are
required to inform HMRC, who will often claim back income tax relief from investors, typicallywith
interest.Itcouldbe inyour bestintereststoensure thatyou firm’s qualifying status does not lapse.
But as a company director, it is your duty to act in the best interests of your business at all times.
Therefore,youcannotbe compelledtoexecuteall the stepsnecessarytomaintain yourinvestors’EIS
relief.We shouldpointout thatsometimesadecisionsuchassellingyourfirm, whichcouldharmEIS
investors but not your other shareholders, could be in your enterprise’s best interests.
Turner Little
Turner Little was foundedin 1998 and it has since become a well-established UK based professional
Company Registration Agent, Registered Bank Intermediaries and Business Consultants, as well as
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