Most UK tech startups pay for their first product with a SEIS round, and SEIS money can pay a development agency. The traps are elsewhere: the money has to be spent on the qualifying trade within three years, HMRC looks at how you use subcontractors when it decides whether investors are really taking a risk, and an agency that takes shares instead of fees will not give your investors any SEIS relief on those shares. Get those wrong and the problem surfaces when investors try to claim.
This guide explains how SEIS and EIS work from a founder's side, what the funds can and cannot pay for, how to structure an outsourced MVP build so it supports eligibility, and how to budget the build inside the round. It is general information, not tax or investment advice. It does not cover Venture Capital Trusts, investor-side relief in detail, or knowledge-intensive company rules.
What is SEIS?
The Seed Enterprise Investment Scheme (SEIS) gives tax relief to individuals investing in new shares of a young UK company. A company can raise up to £250,000 under SEIS if its qualifying trade is under three years old, its gross assets are no more than £350,000 and it has fewer than 25 employees.
Source: HMRC: Apply to use the Seed Enterprise Investment Scheme. The £250,000 limit includes any other de minimis state aid received in the three years up to the investment.
SEIS and EIS limits in 2026
| SEIS | EIS | |
|---|---|---|
| Maximum the company can raise | £250,000 in total | £10 million in any 12 months; £24 million lifetime for most companies |
| Company age | Qualifying trade no more than 3 years old | Usually within 7 years of first commercial sale |
| Gross assets | No more than £350,000 when shares are issued | No more than £30 million before and £35 million after the issue |
| Employees | Fewer than 25 full-time equivalents | Fewer than 250 full-time equivalents |
| Deadline to spend the money | Within 3 years of the share issue | Within 2 years of the investment, or of starting to trade if later |
| When you can submit the compliance statement | After 4 months of trading, or once 70% of the money is spent | After 4 months of carrying out the qualifying activity |
EIS figures are from HMRC's EIS guidance, updated 6 April 2026, which reflects the higher limits announced in the Autumn Budget 2025. A company cannot use SEIS after it has received EIS or VCT investment, so plan the order of rounds.
What SEIS money can pay for
HMRC says the money must be spent on a qualifying trade, on preparing to carry out a qualifying trade, or on research and development expected to lead to one. It cannot be used to buy shares, except in a qualifying 90% subsidiary that uses the money for a qualifying business activity.
| Usually fine | Needs care |
|---|---|
| Paying an agency or freelancers to design and build your product | Spending mainly on a supplier in a way that makes the company look like a shell with no capability of its own |
| Salaries for founders and staff working in the trade | Returning money to investors, directly or indirectly |
| Hosting, software licences, marketing and sales | Buying shares in other companies |
| R&D that is expected to lead to the qualifying trade | Activities that fall into the excluded list, such as certain financial, property or licensing trades |
Outsourcing the build: three things HMRC and investors look at
1. The risk to capital condition
Your company must intend to grow and develop its trade over the long term, and the investment must carry a real risk of loss. When HMRC assesses this it looks at things including your sources of income, assets, structure, relationships with other companies, marketing of the investment, and your use of subcontractors (HMRC SEIS guidance). Outsourcing development is normal. What you want your business plan to show is that the company owns the product, makes the product decisions, and intends to build its own team and revenue over time.
2. IP ownership
Your company should own the code, designs and data from the moment it pays for them. A contract where the agency keeps IP and licenses it to you undermines both your valuation and the story that the company is developing its own trade. Put assignment on payment, repository ownership and access from day one into the contract; our software development contract checklist covers the clauses.
3. Equity for services does not qualify
SEIS and EIS shares must be paid up in full, in cash, when they are issued. If an agency or freelancer takes shares instead of fees, those shares cannot carry SEIS or EIS relief. That does not ban equity-for-work deals, but they sit outside the scheme, can dilute you on awkward terms, and should never be counted as part of your SEIS round.
How much of a SEIS round should go on the build?
There is no rule, but there is a trap: spending most of a £250,000 round on version one and having nothing left to find customers. The planning rule we give founders is to fund the first release and at least 12 months of learning afterwards from the same round.
| Budget line | What it covers | Planning guide |
|---|---|---|
| Discovery and first release | Scope, design, build, testing, launch | Sized to the smallest product that proves demand |
| Iteration after launch | Fixes and features driven by real users | A retained development budget for at least 6 months |
| Running costs | Hosting, tools, app stores, security, maintenance | 15% to 25% of build cost a year for maintenance alone |
| Go-to-market | Sales, marketing, customer research | Often as much as the build |
| Founder runway and compliance | Salaries, legal, accounts, advance assurance | Enough for 12 to 18 months |
Our UK app development cost guide gives current build prices in pounds, and MVP vs full product helps cut the first release to what the money should buy.
Other funding to combine with SEIS
- R&D tax relief. Genuine technological R&D can earn relief, but work performed outside the UK is generally excluded under the merged scheme. Read R&D tax relief for software development before counting on a credit.
- Innovate UK. The open Smart grants programme is closed to new applications while funding is aligned to Innovate UK's new strategic direction. Check UKRI and the Innovation Funding Service for current themed competitions (UKRI Smart grants guidance).
- EIS for the next round. Once SEIS is used, EIS can support larger follow-on investment within its own limits.
How to run a SEIS-funded MVP build
- Apply for advance assurance before you pitch, so investors see HMRC's view of the proposed share issue.
- Write the use of funds by activity, including the development spend, and keep it consistent with the business plan you give HMRC.
- Choose the delivery partner on a contract that assigns IP to the company and gives you repository access from day one.
- Pay in cash from the company's account, and keep invoices that tie each payment to the qualifying trade.
- Start trading or spend 70%, then submit form SEIS1 so investors can receive their certificates.
- Track the three-year deadline and keep the qualifying conditions for at least three years after the investment.
Frequently asked questions
Can I use SEIS money to pay a software development agency?
Yes. SEIS money must be spent on the qualifying trade, preparing for it, or R&D expected to lead to it, and building your product falls within that. HMRC considers the use of subcontractors when assessing the risk to capital condition, so make sure your company owns the IP, controls product decisions and plans to grow its own capability.
What is the SEIS limit in 2026?
A company can raise a maximum of £250,000 under SEIS, including any other de minimis state aid received in the previous three years. At issue it must have gross assets of no more than £350,000, fewer than 25 full-time equivalent employees, and a qualifying trade no more than three years old.
Can a development agency take equity under SEIS?
An agency can agree to take shares, but those shares will not qualify for SEIS or EIS relief because qualifying shares must be paid up in full in cash when issued. Treat any equity-for-work deal as separate from your SEIS round and take legal advice on the terms.
How long do I have to spend SEIS funds?
SEIS money must be spent within three years of the share issue. You can submit the SEIS1 compliance statement once the company has traded for at least four months or has spent at least 70% of the money raised by the share issue.
What is SEIS advance assurance?
Advance assurance is HMRC's view, before shares are issued, on whether a proposed investment is likely to meet the scheme conditions based on the information you provide. It reassures investors but is not a guarantee, and it does not confirm whether each investor qualifies for relief.
Key takeaways
- SEIS lets a UK company raise up to £250,000; EIS allows up to £10 million a year and £24 million lifetime for most companies.
- SEIS money can pay a development agency, as long as it is spent on the qualifying trade within three years.
- HMRC considers your use of subcontractors under the risk to capital condition, so own the IP and the product decisions.
- Shares issued to an agency instead of cash fees do not qualify for SEIS or EIS relief.
- Budget the build and at least 12 months of learning and running costs from the same round.
Plan your SEIS-funded build with us
If you are raising SEIS and want a build plan that fits the round, send us your pitch deck or product outline. You contract with our UK company, speak to us by phone on +44 7863 374791 or a video call, and receive a phased estimate in pounds with IP assigned to your company on payment and repository access from day one, so your use of funds and your contract tell the same story. If a smaller first release would leave you more runway, we will recommend it. See our mobile app development service for London startups.