SEIS and EIS are the two big UK startup tax reliefs, and politicians love to quote them as proof that Britain backs new businesses. They are genuinely useful if you are raising money from angels. But I have bootstrapped several companies and never touched either scheme, which tells you something about who they are really built for.
This is a politics post because the design of these schemes shapes which kinds of business get started in the UK. And right now the answer is mostly the kind that sells equity.
How SEIS and EIS tax relief works
The Seed Enterprise Investment Scheme, SEIS, is for the very earliest stage. Investors who put money into a qualifying young company get 50 percent income tax relief on what they invest, plus loss relief and capital gains benefits. The company can raise up to 250,000 pounds this way.
The Enterprise Investment Scheme, EIS, picks up from there. Investors get 30 percent income tax relief, and the company can raise far larger amounts across its life. Both schemes come with a pile of rules about company age, size and what the business actually does.
The idea is simple enough. Backing a startup is risky, so the government shares the risk with the investor by taking some of the sting out of a failure. For founders who need outside money, that makes the conversation with an angel investor a lot easier.
What an investor needs from you
Most angels will want to see HMRC advance assurance before they commit. It is an informal check that your company looks like it qualifies, and it usually takes a few weeks. You will also need to issue compliance paperwork after the money lands, and the investor needs that to claim their relief.
None of it is impossible. But it is real admin, and you will want an accountant who has done it before. Treat it as part of the cost of raising.
Why SEIS and EIS suit equity funded startups
The schemes work brilliantly for a certain type of company. A founder with a big idea, a pitch deck and no revenue can use SEIS to make early investors comfortable. That is exactly the shape of business the scheme was designed to help.
The trouble is that this is a narrow slice of how real businesses begin. Plenty of founders build a product, find customers and grow on their own revenue. They do not need an investor, so the relief has nothing to attach to.
I have built businesses that way, including CampSuite, and the support I got from the tax system for doing it was roughly zero. Nobody gave me 50 percent relief on the savings and time I put in. That was my own risk, and the state shrugged.
The problem with startup tax relief for bootstrappers
Here is my honest view. We have built a tax system that rewards giving away part of your company far more than it rewards keeping it. If you take outside equity, your investors get a generous deal. If you fund the thing yourself, you get the standard tax bill.
That nudges people in a direction I am not convinced is healthy. Founders chase investment because the system makes investment feel like the proper route, even when a slower and cheaper path would leave them owning far more of what they built.
I covered a related angle in how to compete with VC funded startups when you are bootstrapped. The short version is that outside money is not automatically an advantage, and a tax system that assumes it is does founders no favours.
The cost of the rules is not small
There is also the matter of what happens when you grow. The relief is tied to company age and size limits, so a business that takes a while to find its feet can age out of the schemes before it gets going. Slow, steady and profitable does not tick the boxes the way a fast burning startup does.
That is a strange outcome. A company that survives on revenue is exactly the kind of business we want more of, and it is the one the schemes handle worst.
What I would change about UK startup tax policy
I am not arguing for scrapping SEIS and EIS. They do real good and plenty of companies would not exist without them. My argument is that the same logic should reach founders who back themselves.
Here is what I would try. Give founders a relief when they reinvest their own profits into growth, in the same spirit as the investor relief. Make the age and size tests more forgiving for companies that grow on revenue. And cut down the admin so that a two person company does not need a specialist to claim what the law already promises.
I have made similar points about the wider picture in why UK tax policy punishes people who start businesses. The pattern is the same. The system is generous to capital and stingy to the person doing the work.
What founders should do right now
If you are planning to raise from angels, learn the schemes properly before your first investor conversation. Ask for advance assurance early, keep clean records, and find an accountant with SEIS and EIS experience. It makes you look organised, and organised founders get funded.
If you are bootstrapping, do not feel pushed towards investment just because the tax system makes it look like the grown up option. Work out what you actually need. Often it is less than you think, and my 28 Day Startup book is built around exactly that idea.
Whichever route you take, get proper advice on your own position, because I am a developer and not a tax adviser. And if you want help with the technology side of a new product, you can find out how I work on the services page.
The real test of a startup policy is whether it helps people who start businesses in every way they actually start them. At the moment it helps one way a lot, and the rest of us barely get a mention.
