Structure your ASA so it stays SEIS/EIS‑compliant
Navigating Advance Subscription Agreements (ASAs): A Founder's Guide to SEIS/EIS Compliance that passes HMRC tests, issues qualifying ordinary shares, and converts smoothly at your next round.
For UK founders embarking on their first fundraise, the path to securing investment can feel complex, especially when navigating tax-efficient schemes like SEIS and EIS. A common tool in this journey is the Advance Subscription Agreement (ASA). This guide demystifies ASAs, ensuring your agreement not only passes HMRC tests but also smoothly converts into qualifying ordinary shares at your next funding round.
An ASA is a cash‑for‑future‑shares agreement. It is not a loan. In the UK, founders use ASAs so investors can claim SEIS or EIS tax relief.
- SEIS is the Seed Enterprise Investment Scheme.
- EIS is the Enterprise Investment Scheme.
- A SAFE is a US‑equivalent ASA: Simple agreement for future equity.
HMRC expects UK ASAs to be simple and to meet specific conditions if you want SEIS/EIS relief. See HMRC’s ASA guidance for EIS and SEIS at gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm12025 and gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm33025.
In 2024–25, HMRC received 3,090 EIS advance assurance applications and approved 76% of them by March 2025. Why it matters: apply before entering into the ASA and keep terms plain so you can issue the shares on time and let investors claim relief. Source: HMRC 2025 statistics
What HMRC expects to see in an ASA
Keep it simple. HMRC looks for four things:
1. no right to a refund,
2. no interest,
3. no assignment,
4. and a clear longstop date.
The longstop should usually be six months from signing. Aim to issue the shares well before that date. Source: HMRC manual, EIS/SEIS ASA rules.
Apply for advance assurance before you sign. Include investor names and near‑final documents. This improves clarity and timing.
Design conversion to fit the next round
- Build from your next round term sheet. Decide how the ASA price should convert at the round. Many ASAs use a discount and sometimes a valuation cap. HMRC does not list caps or discounts as banned. Keep mechanics simple and avoid investor‑protection features that change risk. See the HMRC ASA pages cited above.
- Convert into ordinary shares. On conversion the shares must be new ordinary shares, fully paid in cash, non‑redeemable, with no present or future preferential rights to dividends or assets on a winding up. If your round uses preferred shares, convert ASA holders into a class of ordinary shares that does not carry preferential rights. Source: HMRC shares requirement.
Keep SEIS/EIS eligibility intact on the day you issue the shares
- Test eligibility at share issue, not at ASA signature. For SEIS, check the gross‑assets limit immediately before the issue. HMRC will not count advance payments for that share issue in gross assets at that point. Source: HMRC SEIS gross‑assets guidance.
- Avoid linked loans, pre‑arranged exits and other disqualifying arrangements. These can damage relief. Source: HMRC manual on linked loans and arrangements (start with VCM11030, VCM12080, VCM12100 via gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual).
- Keep using ASAs, not CLNs. Convertible loan notes are debt‑like. They usually include interest, maturity, and repayment. That clashes with HMRC’s ASA conditions.
- Planning horizon. EIS and VCT income tax reliefs are legislated through 5 April 2035. This reduces sunset risk for rounds that ASAs will convert into. Source: Finance Act 2024 s.11 and appointed day regulations.
Advance assurance and timing discipline
- Prepare a simple timetable. Submit advance assurance. Collect funds. Close the ASA. Complete any conditions needed for share issue. Issue shares well before the longstop.
- After you issue the shares, submit the compliance statement when eligible under HMRC guidance. For SEIS, see VCM35040; for EIS, see VCM14040. HMRC will then authorise SEIS3/EIS3 certificates. Sources: HMRC compliance guidance (start at gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm35040 and gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual/vcm14040).
Red flags to avoid and quick fixes
- Refund, interest, or assignment clauses. Remove them. Use simple, non‑refundable advance payment language. Source: HMRC ASA guidance.
- Conversion into redeemable or preference shares. Fix by converting into ordinary shares instead. Source: HMRC shares requirement.
- Side letters that create preferential economics or protections. Avoid terms that shift the investor’s risk profile. Source: HMRC shares requirement.
- Value received traps. Avoid providing non‑commercial benefits or repayments to the investor. Source: HMRC “value received” rules (start at VCM15030 via gov.uk/hmrc-internal-manuals/venture-capital-schemes-manual).
Close and comply without friction
- On closing, issue shares, update the cap table, and file Companies House forms. Keep board and shareholder approvals in order.
- File SEIS1/EIS1 at the right time under HMRC guidance, then issue SEIS3/EIS3 after authorisation. Sources: HMRC ASA guidance.