The Seed Enterprise Investment Scheme (SEIS) provides significant benefits to investors. However, understanding the concept of being ‘connected’ to the company is vital for determining eligibility. If an investor qualifies as a connected person, they lose access to Connected Person SEIS. Therefore, investors must understand what makes them a connected person and how this affects their SEIS eligibility.
Under SEIS rules, a person becomes ‘connected’ to the company when they exert significant influence over it. This influence can appear through shareholding, voting rights, or specific familial relationships.
The term SEIS connected person describes an investor whose relationship with the company falls within the statutory connection tests. These tests consider employment, share ownership, control and certain relationships with associates, so eligibility must be assessed against the relevant SEIS rules.
The primary criteria for being deemed connected include:
An investor becomes connected if they hold more than 30% of the company’s shares or voting rights. This threshold stops individuals with substantial control over the company from accessing Connected Person SEIS.
If the investor works as an employee of the company, they are considered connected. However, serving as a director does not automatically make them connected. As long as the director avoids significant shareholding or voting rights, they remain eligible. Investors must follow SEIS Investment Rules carefully to ensure compliance.
Close relatives, including spouses, parents, children, and siblings, can make an investor connected if their combined family shareholding exceeds 30%. This rule stops Connected Person SEIS from benefiting individuals who could exert undue influence over the company.
Understanding these criteria helps ensure Connected Person benefits genuine external investors.
If the investor qualifies as connected, they cannot claim on their investment. This rule keeps Connected Person SEIS exclusive to external investors who take on financial risk.
To navigate these complexities, SEIS Expert Assistance provides invaluable guidance. Advisors assess the connection status of investors and ensure compliance with SEIS regulations. Businesses planning to raise investment can also benefit from professional business structuring advice to review shareholder arrangements, ownership rights and the company’s structure before seeking SEIS investment. Companies planning to raise investment should also review the official HMRC guidance on applying to use the Seed Enterprise Investment Scheme to understand the qualifying conditions and compliance requirements.
The connected person SEIS rules require investors to consider more than their direct shareholding. Voting rights, rights to assets on a winding-up, indirect interests and qualifying associates can all affect the assessment. The relevant conditions must be checked throughout the applicable SEIS period, rather than only on the investment date.
Assessing SEIS eligibility for connected persons correctly means reviewing each investor’s circumstances individually, including relevant family and business relationships. The legal definition of an associate is specific, so not every relative’s shareholding is automatically attributed to the investor.
Scenario: John invests in an SEIS-eligible company and acquires 25% of the shares.
Outcome: John does not qualify as connected and remains eligible for Connected Person SEIS.
Change: If John buys additional shares, increasing his total shareholding to 35%, he becomes connected and loses eligibility for Connected Person SEIS from that point onward.
Scenario: Sarah works as a director of an SEIS-eligible company with a 10% shareholding.
Outcome: Sarah does not qualify as connected because her directorship alone does not make her connected. She remains eligible for Connected Person SEIS.
Change: If Sarah transitions to an employee role within the company, she becomes connected and loses eligibility for Connected Person SEIS.
Scenario: Michael, his wife, and his brother each hold 15% of the shares in an SEIS-eligible company.
Outcome: Individually, none of them qualify as connected. However, their collective family shareholding adds up to 45%, which makes them connected and ineligible for Connected Person SEIS.
Understanding the connection rules helps investors maximise the benefits of SEIS investments. At Apex Accountants, we guide you through Connected Person SEIS rules and align your investments with SEIS Investment Rules. Our team of experienced advisors at SEIS Expert Assistance will help you navigate the regulations and safeguard your eligibility.
For tailored advice to meet SEIS requirements, consult our experts today. Protect your SEIS Tax Planning and stay confident with Apex Accountants. Contact us now to create a comprehensive strategy that meets your needs.
Broadly, an investor connected to the company cannot claim SEIS relief: employees, directors, and anyone controlling the company (with connected-partner rules). Once the connection ends, a waiting period applies before shares can qualify.
Paid directors and employees are connected and cannot claim. An unpaid director at the time the shares are issued is not treated as connected by employment under the SEIS rules, provided they receive no remuneration — a nuance worth stating precisely on the page. Spouses and relatives of connected persons are also caught by the connected-person rules.
Map every investor against the statutory tests before the share issue, not after — relief cannot be repaired retrospectively. We run eligibility checks as part of SEIS advance assurance applications.
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