Top 10 Mistakes Startups Make When Applying for SEIS/EIS

What Are SEIS and EIS?

At heart, both schemes encourage investment into unlisted UK companies by offering income tax and capital gains advantages to individual investors who subscribe for new shares. SEIS is built for the seediest of seed stages; EIS is broader in scope but has its own guardrails. What are EIS and SEIS? Two complementary tools for funding early UK innovation, similar paperwork, different thresholds.

Why Do Startups Use SEIS and EIS?

Whether I should apply for EIS or SEIS is ultimately a capital strategy question. These schemes lower effective risk for individual backers, angels and family offices, so they lean in sooner and sometimes write larger cheques. Under SEIS, investors can claim 50% income tax relief on qualifying subscriptions (up to £200,000 per tax year since 2023/24), with additional reinvestment and loss relief mechanics. EIS provides 30% relief, plus capital gains deferral, with higher annual and lifetime company limits—making it the default for rounds beyond the first £250k. The result is a meaningful UK tax relief for investors and a stronger fundraising story for founders.

Is it better to invest in EIS or SEIS? It depends on the stage and risk appetite. Early product-validation rounds often lean on SEIS for the 50% relief; growth and scaling rounds lean on EIS for cheque size and breadth of eligibility. Either way, investors expect you to speak fluently about what SEIS/EIS is, the difference between SEIS and EIS, and how you’re sequencing your raise. British Business Bank, 2025.

Top 10 SEIS and EIS Mistakes in Practice

1) Confusing SEIS and EIS Eligibility

Suppose you’re under 3 years of trading, with gross assets ≤ £350k and <25 employees, SEIS may fit. If you’re beyond that but within 7 years of first commercial sale (or you qualify as knowledge-intensive), EIS is typically your lane. Many founders blur these lines and build decks before checking the basics. Start eligibility with age, assets, employees, independence (not controlled by another company), and a qualifying trade.

Tip: Confirm your UK permanent establishment early; it’s an explicit requirement under the schemes.

2) Mixing SEIS and EIS in the Wrong Order

There’s a hard sequencing rule that many teams discover late: once you issue EIS shares, you cannot issue SEIS shares. In practice, founders plan the round so that the first £250k is SEIS, then the remainder is EIS, and they issue SEIS shares first, EIS after. Don’t get this wrong. Can you switch from SEIS to EIS? Yes, SEIS first, then move on to EIS. The reverse is not permitted.

3) Trying to Raise SEIS and EIS at the Same Time

You can market a round that includes both reliefs, but you still need to sequence shares correctly (SEIS before EIS) and keep clean documentation (separate share classes/allocations). Investors will ask: Can you raise SEIS and EIS at the same time? You can, if your legal and cap-table plumbing respects the order and if the company meets both sets of conditions.

4) Founders Misusing SEIS/EIS (Connection Rules and the “Business Angel” Exception)

A persistent misunderstanding: employees and certain “connected” persons cannot claim EIS relief; directors are a special case. Under SEIS, a director can still qualify for investor relief (the employee prohibition has a director carve-out). Under EIS, directors may qualify only if they fit the tightly drawn business angel exception (typically appointed after investing, on reasonable terms). If you’re a founder-director lining up to invest alongside angels, plan the sequence with counsel. Can founders use EIS and SEIS? Sometimes, SEIS is generally more permissive for director-investors; EIS requires careful structuring under the business angel rules.

5) Application Errors and Misunderstanding of the Process

Two common trip-ups:

• Advance Assurance (AA) is not approval; it’s HMRC’s non-binding view that a proposed share issue would likely qualify based on the facts provided. You apply per the proposed investment; conditions must still be met at the actual share issue.
• Compliance statements: investors can’t claim relief until you’ve issued the shares and filed SEIS1 or EIS1, and HMRC has authorised the SEIS3/EIS3 certificates. Timing matters: for SEIS, you can file once you’ve traded 4 months or spent 70% of the money raised (whichever comes first). For EIS, file within the prescribed window after beginning the qualifying activity.

If you want to know how the EIS and SEIS application process works, think of it in three steps: (1) optional Advance Assurance; (2) share issue (properly sequenced); (3) compliance statement → HMRC authorises investor certificates.

6) The Wrong Types of Businesses Applying

Not every trade is eligible. Excluded activities include, among others, property development (e.g., house building), certain financial activities, leasing, and operating hotels or comparable establishments. That’s why “Does house building qualify for SEIS or EIS?” is almost always no, as property development is explicitly excluded. Would a campsite qualify for SEIS or EIS? Often no, because campsites are typically treated as accommodation businesses comparable to hotels, which fall within the exclusions. Would a fish and chip shop qualify for SEIS or EIS? A straightforward restaurant or takeaway trade is not on the exclusion list; eligibility then turns on meeting all other scheme conditions (risk-to-capital, independence, etc.). When in doubt, check the exclusions list in the HMRC manual and seek AA.

7) Misunderstanding Limits and Guarantees

Does SEIS guarantee EIS? No. They’re separate schemes with distinct conditions. Does SEIS give you EIS over £150k/£250k? No again. SEIS has a £250k company cap; beyond that, you move into EIS, subject to meeting EIS rules on age, size, and use of funds. Investor limits also differ: SEIS investor relief is capped at £200k a year (from 6 April 2023), EIS at £1m (or £2m for KICs).

8) Confusion About Advance Assurance

Does advanced SEIS assurance mean EIS as well? No. HMRC’s own wording: you must make separate applications for each proposed investment; AA is an indicator, not a guarantee. Treat AA as a pre-flight check that will reassure investors, not as permission to skip the compliance statement step.

9) Ignoring HMRC Requirements that Sit “Behind” the Forms

Two that matter:

• Permanent establishment in the UK at the relevant time. This is explicit in the manual.
• Risk-to-capital condition and “qualifying business activity” rules. These aren’t box-ticking formalities; HMRC can withdraw relief if facts diverge post-issue.

Also, those interested in what departments are EIS and SEIS at HMRC? Venture Capital Reliefs are administered within HMRC; company compliance statements and enquiries are routed to the enterprise.centre@hmrc.gov.uk mailbox noted in the official guidance.

10) Not Using Professional Help (or the Right Tools)

Raising under SEIS/EIS is a legal-tax-ops dance. A small error (wrong share class wording; issuing out of order, late filings) can snowball into investor frustration. This is exactly where Undo Capital helps: eligibility triage, Advance Assurance preparation and submission, round architecture, SEIS/EIS compliance statements, and automated share issue with the right Companies House paperwork, so the admin fades and the round holds together.

How to Avoid Mistakes When Applying for SEIS/EIS

1. Map eligibility: age, assets, employees, independence, trade, and permanent establishment; document how you meet risk-to-capital.
2. Sequence the round on paper: State clearly that the first £250k will be SEIS, then EIS thereafter; plan share classes accordingly.
3. Get Advance Assurance right: Treat it as investor-facing diligence; apply per proposed investment and update HMRC if anything changes.
4. Issue → Comply: Don’t promise relief before the SEIS1/EIS1 is in and SEIS3/EIS3 is authorised. Note the SEIS 4-month/70% rule.
5. Screen the trade: sanity-check against excluded activities (e.g., house building; hotels/comparable establishments).
6. Document investor status: business-angel exception (EIS) vs director carve-out (SEIS); handle “connectedness” carefully.
7. Communicate: Add a one-slide explainer on what SEIS/EIS is and what the difference is between SEIS and EIS to your deck.

Use the right tooling: Eligibility checks, AA pack, SEIS/EIS sequencing, and filings are all automated in Undo Capital, with review where it matters most.

SEIS/EIS Application Checklist: Essential steps to avoid common pitfalls

SEIS/EIS: Get It Right and Raise with Confidence

You don’t need to become a tax barrister to raise well in the UK, but you do need to respect the rules and to explain them crisply to investors. Know what SEIS/EIS is, understand the difference between SEIS and EIS, decide whether I should apply for EIS or SEIS based on stage and cheque size, and execute with discipline: SEIS before EIS; issue before comply; and document everything. Get those basics right and you tilt the odds in your favour, both with HMRC and with the angels you want on your cap table. If you’d like a process that’s unhurried, accurate, and founder-friendly, Undo Capital is built for exactly this job.