Common legal pitfalls when raising SEIS
Almost everything written about SEIS is about whether you qualify. That is the easy part, and it is the part founders tend to get right. The relief is far more often lost in the execution, by companies that qualified perfectly well and then fumbled the paperwork, the timing or the order. So this is not a piece about eligibility. It is about the ways a qualifying company still manages to lose the benefit of the Seed Enterprise Investment Scheme.
Raising in the wrong order
SEIS is built for the very start of a company's life, and it sits behind limits on its age, size and the amount of qualifying investment it can receive. Take early funding without considering SEIS and you may narrow the options for later qualifying investment. The order and terms of early funding can affect whether later investment qualifies for SEIS, so it needs to be planned before the round.
Getting advance assurance wrong, or late
Advance assurance is HMRC signalling in advance that your company looks like it qualifies. It is not compulsory, but investors lean on it heavily, and a thin or late application costs you the thing you cannot afford to lose, which is time. HMRC does not usually reject weak applications outright. It asks questions, and the questions burn the weeks your investor was willing to wait. The application itself needs to be complete, comprehensive and true in all respects; anything less and the assurance you get back is not worth having.
Forgetting that advance assurance is only half the job
This is the pitfall founders least expect, because they think advance assurance was the finish line. It was not. Advance assurance is the pre-raise check that you look eligible. It does not actually give anyone tax relief. To unlock the relief, you have to file a compliance statement after the shares are issued, on form SEIS1, and only once HMRC accepts it will it authorise the SEIS3 certificates that your investors need to make their claim.
The compliance statement is where a surprising number of rounds come unstuck. You cannot file it until the company has been trading for at least four months or has spent 70% of the money, so file too early and HMRC simply returns it . The share issue details on the form have to match your Companies House filings exactly, and errors in investor names or subscription amounts can hold up the certificates. And each separate share issue needs its own statement. Advance assurance makes this stage smoother, because HMRC has already seen the eligibility case, but it does not remove the step nor does it guarantee that HMRC will deem you eligible - it’s an indication only. The relief is not real until the compliance statement is accepted.
Worth knowing too: advance assurance is not permanent approval. HMRC can enquire into whether the company and the investment meet the SEIS conditions, including whether those conditions continued to be met after the advance-assurance application. Good records from the start are what make that painless.
The share issue itself
SEIS relief lives or dies on the mechanics at the moment the shares are issued. The shares must be full-risk ordinary shares, fully paid in cash when issued, and the investment needs to be structured correctly from the outset. Get the sequence or the share type wrong and the relief can simply not attach, with no way to retrofit it afterwards. This is the pitfall that stings most, because the company did everything right except the last, quiet, technical step.
Spending the money on the wrong thing
The funds have to be used to grow the business within a set window, not to buy a capital asset or refinance something. Founders rarely fall foul of this deliberately. They fall foul of it by not knowing the constraint existed.
The theme across all of these is the same. SEIS is not hard to qualify for. It is easy to lose through ordinary decisions made in the wrong sequence, or by treating advance assurance as the end when the compliance statement is the part that actually delivers the relief. If you are about to raise and you want the relief to survive contact with reality, the time to get the execution right is before the round, not after. That is exactly the kind of thing we handle.
How Kyra Law can help
Kyra Law can review your SEIS fundraising plan, check the share issue mechanics and supporting paperwork, and help you prepare for advance assurance and the compliance statement. For a lawyer review and fast turnaround before your round, contact enquiries@kyralaw.co.uk.