There’s an important change to how UK startups raise funding, and you probably don’t know about it

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The government’s SEIS (Seed Enterprise Investment Scheme) and EIS (Enterprise Investment Scheme) programmes have been a huge success. At <a href="https://seedlegals.com" target="_blank">SeedLegals</a> we can see that they fuel the UK’s early-stage startup economy, with the vast majority of £500K and lower funding rounds being powered by angel investors and syndicates looking for SEIS or EIS tax benefits.<br>&nbsp;<br>Many of those investors will only make their investments after the company has obtained confirmation from HMRC that the company is eligible for SEIS or EIS. That’s known as Advance Assurance. It’s clearly proving hugely popular, with HMRC now taking 8 weeks or more to process these applications.<br>&nbsp;<br>To try to reduce their workload and reduce processing times for this important pre-approval document, starting January 2nd this year, <strong>every Advance Assurance application must now include the names of investors intending to invest in that funding round or the application will be rejected</strong>. Applications which do not contain their investor’s details will now be deemed as ‘speculative investments’ and rejected.<br>&nbsp;<br>HMRC has introduced this change to reduce the demand for the Advance Assurance service. 30% of approved applications are speculative and don’t result in investment, and HMRC are aiming to limit applications only to those companies which have demonstrated investor interest — they’ve put together a <a href="https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/663935/Tax-advantaged_venture_capital_schemes-streamlining_advance_assurance_service-Gov_response.pdf" target="_blank">helpful summary of their reasoning</a> (PDF).<br>&nbsp;<br><strong>What this means for startups<br></strong>&nbsp;<br>While the goal of reducing application approval times is laudable, this change is going to be a significant problem for startups because it creates an unhelpful Catch-22: the startup needs to know who their investors will be before they can obtain Advance Assurance, and investors will often only commit to investing after the company has obtained their Advance Assurance!<br>&nbsp;<br>Previously you could apply for Advance Assurance many months before your funding round so you’d have everything in place before you approached investors, but you’ll now need to have at least some level of interest from specific investors before you can lodge your application.<br>&nbsp;<br>With this change being new and not well publicised so far, most startups won’t be aware of these changes and their upcoming Advance Assurance changes will be rejected.<br>&nbsp;<br><strong>SEIS/EIS, the easy way</strong>