Cross-border funding for UK startups, using EU programmes, US angels and EIS

What to take away

What cross-border funding means for a UK company after Brexit

Cross-border funding for a UK company now means three separate money flows that do not share a rulebook. EU programme money arrives through association and UKRI guarantees. US angel money arrives as a share subscription or a convertible instrument. UK tax reliefs arrive through HMRC, and they care about who owns the shares and what the company does.

Brexit removed automatic access to most EU funding lines. UK entities can still take part in Horizon Europe as associated country participants. They cannot lead certain calls that are reserved for member state coordinators. That distinction decides whether your consortium can name a UK lead.

Where a UK company sits inside a group matters. If a US parent holds the shares, the UK trading company can still issue EIS shares to angels, but the parent cannot be a subsidiary of the UK company.

Structures with a Delaware topco and a UK operating company are common and workable, provided the UK company is the one issuing the shares.

Currency risk sits with the founder, not the investor, unless the articles say otherwise. A dollar subscription converted at completion gives the US angel a fixed sterling cost. A subscription left in dollars creates a variable share price and a Companies House filing problem. Fix the rate in the subscription agreement.

Your regulatory questions start early when money crosses a border. The UK regulatory questions behind every startup funding communication cover who is promoting the shares, to whom, and under which exemption.

Combining EIS and SEIS reliefs with non-UK investment

EIS and SEIS are investor reliefs, not company grants. A US angel who pays UK tax on the shares can claim them. A US angel who does not pay UK tax generally cannot, though the company still benefits from the scheme's conditions being met for other investors.

That asymmetry is the single most common misunderstanding in a cross-border round. The company does not receive a cheque from HMRC. It receives the right to issue shares that qualify. One qualifying investor can claim, and a non-qualifying investor beside them changes nothing about the company's status.

SEIS is the smaller, earlier relief. It applies to shares issued by a company that is no more than three years old, has not yet traded on a recognised exchange, and has gross assets of no more than £350,000 before the issue.

An investor can subscribe up to £200,000 in a tax year and receive 50% income tax relief.

EIS is the larger relief. The company must have gross assets of no more than £15 million before the issue and £16 million after, and fewer than 250 full-time equivalent employees. An investor can subscribe up to £1 million in a tax year, rising to £2 million if at least £1 million goes into knowledge-intensive companies.

You can run both in one round, but not on the same shares. SEIS shares must be issued first, and the company must spend the SEIS money before it can issue EIS shares in the same period. The sequencing is a condition, not a preference.

For the market context, the startup funding market in England, from grants and loans to EIS and SEIS, shows how the two reliefs sit alongside regional funds. The scheme rules themselves are set out in the official guidance on raising money by offering tax reliefs to investors.

EU programme money: Horizon Europe help for UK applicants

Horizon Europe is the EU research and innovation programme that UK entities can join as associated country participants. UK companies, universities and research organisations can apply for grants under most pillars. The money is paid to the participant, not routed through a UK agency, though UKRI guarantees payment if the EU route is interrupted.

Horizon Europe: help for UK applicants, UKRI is the starting point for eligibility, national contact points and the guarantee. UKRI also runs briefing events and a help desk that answers questions on consortium roles and budget lines.

Grants are usually collaborative. A small UK company rarely wins a large call alone. The typical shape is a consortium with a coordinator in an EU member state, five to fifteen partners, and a work package the UK company leads. The UK partner receives its share as a lump sum or against costs, depending on the call.

That grant is not equity. It does not dilute the cap table and it does not count as a subscription for EIS purposes. But it does count as state aid in some calls, and it does count towards the gross assets test. A grant paid into the company increases assets and can push a company past the SEIS ceiling.

Timing matters more than the amount. Horizon Europe calls have fixed deadlines and evaluation cycles that run for months. A grant award landing between an SEIS advance assurance and the share issue can break the SEIS conditions. Tell your adviser before you submit the application.

Innovate UK grants and innovation loans are separate from Horizon Europe and are not state aid in the same way. They can be combined with EIS and SEIS, but the same gross assets point applies. Check the position at the date of each share issue, not at the start of the round.

US angel investment and the structuring points it raises

US angels invest in UK companies through a share subscription, a convertible note, a SAFE or an advance subscription agreement. Only the share subscription produces shares that can qualify for EIS or SEIS. The other instruments convert later, and the qualifying date is the date the shares are issued.

That delay is the main structuring risk. A SAFE signed in September may not convert until a priced round eighteen months later. By then the company may be too old for SEIS, or the gross assets may have moved. If the angel wants relief, issue the shares at the time of the money.

US angels often want a US-style term sheet. The clauses that cause trouble with HMRC are the ones that give the investor a preferential right to assets on a sale, or a right to a fixed return. EIS and SEIS shares must be ordinary shares with no preferential rights to the company's assets on winding up.

Redemption rights are the other trap. A right for the investor to force the company to buy back the shares is not permitted on EIS shares. Convertible loan notes with a redemption right are fine as debt, but they cannot be the instrument that carries the relief.

Delaware flip structures are common where US angels lead. The UK company becomes a subsidiary of a Delaware parent. That can work, but the UK company must remain the one issuing the EIS shares, and the parent must not be a subsidiary of the UK company. Take advice before the flip, not after.

On the investor side, the reliefs are claimed by the angel through their UK tax return. The official guidance on tax relief for investors using venture capital schemes sets out the income tax, capital gains and loss relief positions for SEIS, EIS and VCT.

A US angel with UK tax exposure should read it before signing.

Eligibility limits that cross-border money can breach

Cross-border money can breach a relief without anyone intending it. The rules are written around the UK company and its shares, and foreign money changes the facts on the ground. The three tests that fail most often are the gross assets test, the qualifying business activity test and the control test.

Gross assets are measured before and after the issue. SEIS has a ceiling of £350,000 before the issue. EIS has £15 million before and £16 million after. A Horizon Europe grant or a large US seed cheque paid into the bank before the share issue can push you over. Time the receipt, or issue the shares first.

The company must carry on a qualifying trade. Most trading companies qualify. Excluded activities include dealing in land, leasing, financial activities, legal and accounting services, and running a hotel. If a US investor brings a side business into the UK company, check that it does not become a substantial part of the trade.

The control test looks at the investors. An investor cannot hold more than 30% of the ordinary share capital, or more than 30% of the voting power, or be entitled to more than 30% of the assets on a winding up.

A single US fund taking a large stake in a small SEIS round can trip this. Split the round or bring in more investors.

The age limit is a SEIS condition, not an EIS one. SEIS shares must be issued within three years of the company's first commercial sale. EIS has no age limit, but the company must be within seven years of its first commercial sale for the knowledge-intensive test. A long grant-funded research phase can eat the SEIS window.

The money must be used for a qualifying business activity within two years for SEIS and within two years for EIS, or by the date in the business plan if later. The money must reach the UK company.

A US angel cheque parked in a US account while the UK company waits for a visa is not a qualifying use.

The full EIS conditions are set out in the official guidance on how to apply to use the Enterprise Investment Scheme. The SEIS conditions and limits are set out in the guidance on how to apply to use the Seed Enterprise Investment Scheme.

Named programme rules and how they interact with UK reliefs

Horizon Europe, Innovate UK, the British Business Bank's regional funds, Scottish Enterprise, the Development Bank of Wales and Invest NI all interact with EIS and SEIS differently. The common thread is that public money is not a share subscription, so it does not itself qualify, but it changes the company's balance sheet.

Horizon Europe grants are paid to the participant and are not repayable. They count as income and as assets. A grant of £500,000 received by a company with £300,000 of gross assets will breach the SEIS ceiling immediately. It will not breach EIS, provided the post-issue assets stay under £16 million.

Innovate UK grants and innovation loans are similar. Grants are non-dilutive and count as assets. Loans are debt and count as a liability, but the cash received still counts as an asset. A company with a large innovation loan may fail the SEIS gross assets test even though it has no equity investors.

The British Business Bank's regional funds invest through equity and debt alongside private investors. Where a British Business Bank fund takes ordinary shares, it is treated like any other investor for the control test. Where it takes preference shares, those shares are not EIS-qualifying and do not count towards the 30% control test in the same way.

Scottish Enterprise, the Scottish National Investment Bank, the Development Bank of Wales and Invest NI run their own co-investment and grant programmes. Each has its own state aid position and its own view on whether EIS shares can sit alongside. Ask for written confirmation before you sign a funding agreement.

Advance assurance from HMRC is the practical bridge. It is not a guarantee, but it tells you whether HMRC is likely to agree that a proposed share issue qualifies. Apply before you issue shares, and tell HMRC about every grant and loan in the business plan.

VCT money is a separate route and is not usually combined with SEIS or EIS in the same round. A VCT investment can affect the control test and the gross assets position. Treat it as a distinct decision.

Structuring a round that keeps SEIS and EIS qualifying conditions intact

The order of operations decides whether a cross-border round keeps its reliefs. Work through the sequence below before you sign anything.

Use this checklist before each issue.

A worked example shows the timing point. A Manchester software company has £200,000 of gross assets in January and applies for SEIS advance assurance on a £150,000 round. In March it wins a £400,000 Horizon Europe grant. If it issues the SEIS shares in April, gross assets are £600,000 and the SEIS conditions fail.

If it issues the SEIS shares in February, before the grant is received, the shares qualify. The grant then lands on a company that already has SEIS investors, which is permitted. The lesson is that the date of the share issue, not the date of the round, is the test date.

Budget for the cost of getting this wrong. A failed relief means the investor loses the income tax relief and the company loses the goodwill. The startup funding budget that includes dilution, delay and fallback should carry a line for tax advice on cross-border rounds.

Keep the paperwork tight. You will need to issue EIS statements to each investor, and the compliance certificate must match the shares actually issued. HMRC can withdraw relief if the statements do not match the register.

Finally, treat the choice of route as a whole bargain, not a set of separate reliefs. Run the checks before choosing a startup funding route, from eligibility to the whole bargain, because a grant that looks free can cost you the SEIS relief on the same round.

Common questions