Do ASAs and convertible notes qualify for SEIS/EIS?
By SuLe · Updated 11 June 2026
Advance subscription agreements (ASAs) can qualify for SEIS and EIS, provided they meet HMRC's conditions — non-refundable, interest-free, incapable of variation or cancellation, converting only into full-risk ordinary shares, with a longstop date no more than six months from signing. Convertible loan notes do not qualify: they are debt, and both schemes demand money genuinely at risk in shares.
Key facts
- HMRC's published expectation is that an ASA's longstop date is no more than 6 months from signing.
- SEIS/EIS shares must be new, full-risk ordinary shares, paid up in full in cash at issue, with no preferential rights on a winding up.
- A convertible loan note is repayable debt, so it cannot qualify for SEIS or EIS.
- Relief arises when shares are issued at conversion — not when the investor transfers the money.
- SEIS relief is worth 50% of the amount invested; EIS relief is worth 30%.
Why do ASAs qualify when convertible notes do not?
Because the schemes fund equity risk, not lending. An ASA is an advance payment for shares: the money is non-refundable, earns no interest, and the only way out is conversion into shares. From the day it is signed, the investor's capital is exposed the way SEIS and EIS require.
A convertible loan note is the opposite. It is a debt that may convert — but until then it is repayable, usually with interest, and repayment is precisely the capital protection the schemes prohibit. Both schemes also bar pre-arranged exits and capital-protection arrangements generally.
So the choice of instrument is not a drafting nicety. It decides whether your investors' 50% (SEIS) or 30% (EIS) relief exists at all.
What conditions must an ASA meet for SEIS or EIS?
HMRC's advance assurance guidance sets the shape. The payment must be irrevocable and non-refundable; the agreement must carry no interest; it must not be capable of being varied, cancelled or assigned; and it must convert only into full-risk ordinary shares with no preferential rights to assets on a winding up.
The longstop date — the backstop on which the ASA converts if no funding round arrives first — should be no more than six months from signing.
Get one condition wrong and the shares issued on conversion may simply not qualify. A refund clause is the classic self-inflicted wound: it turns the advance into a loan.
When does the investor's relief actually arise?
At conversion, when the shares are issued — not when the money is transferred. An angel who pays in January under an ASA that converts at your June round holds nothing claimable until June.
After the issue, the company files its SEIS1 or EIS1 compliance statement with HMRC, which it can do after 4 months of trading or once 70% of the money raised has been spent. HMRC then authorises the SEIS3 or EIS3 certificates investors use to claim.
This timing gap is why short longstops are investor-friendly: the sooner conversion happens, the sooner the relief clock starts running at all.
Can a convertible loan note be fixed for SEIS or EIS?
Rarely, and never by conversion alone. Qualifying shares must be paid up in full in cash at issue — and when a note converts, the subscription price is typically satisfied by cancelling the debt rather than paying fresh cash, which sits badly with that requirement.
The practical answer is to use the right instrument from the start: an ASA for bridge money where investors want SEIS or EIS, or a priced round with a straightforward cash subscription.
If you have already taken a note from an investor who expected relief, do not improvise. Unwinding or replacing it has tax and company-law consequences that need specialist advice.
| ASA | Convertible loan note | |
|---|---|---|
| Legal nature | Advance payment for shares | Debt |
| Repayable? | No — non-refundable | Yes, at maturity or on default |
| Interest | None | Usually accrues |
| Converts into | Full-risk ordinary shares | Shares — or repaid in cash instead |
| SEIS/EIS eligible | Yes, if HMRC's conditions are met (longstop ≤ 6 months) | No |
| When relief arises | On share issue at conversion | Never |
Worked example
Hannah and Marcus, founders of warehouse-robotics startup Mekanica Ltd, are offered £80,000 as a convertible loan note: 8% interest, repayable in twelve months if no round closes. Their angel wants SEIS relief, so the note fails twice over — it is debt, and it is repayable.
They counter with an ASA: £80,000, non-refundable, interest-free, converting at a 10% discount, longstop five months out. The seed round closes in month four, the ASA converts, and Mekanica issues new ordinary shares.
The angel's SEIS claim is £40,000 — 50% of £80,000, within the £200,000 annual investor cap — and the round sits comfortably inside Mekanica's £250,000 SEIS lifetime capacity. Same money, same investor; only the instrument changed.
Where founders go wrong
Taking the note because it was on the table
— it quietly deletes the 50% or 30% relief your investors priced in.Adding a refund clause to the ASA "just in case"
— a refundable advance is a loan, and the relief dies with it.Letting the longstop drift past six months
— outside HMRC's published expectation, and every converting investor's relief is exposed.Promising relief from the payment date
— it runs from the share issue at conversion, which can be months later.
Related questions
Is an ASA a loan?
No. An advance subscription agreement is an advance payment for shares: the money is non-refundable, earns no interest and can never be repaid, only converted into shares. That is exactly what keeps the investment at risk and capable of qualifying for SEIS and EIS. [More: What is an advance subscription agreement (ASA)?]
Why must an ASA's longstop be six months?
Because HMRC's published expectation for SEIS/EIS-compatible ASAs is a longstop date no more than six months from signing. A longer backstop starts to look like money parked on flexible terms rather than capital at risk, and it puts every investor's relief in question. [More: Why do ASAs have a six-month longstop date?]
Can we convert an existing loan note into SEIS shares?
It is unlikely to work. SEIS and EIS shares must be paid up in full in cash at issue, and converting a note typically settles the share price by cancelling debt rather than paying fresh cash. Restructuring an existing note is specialist territory — take advice early.
Does a SAFE qualify for SEIS or EIS?
Not off the shelf. The SAFE is a US instrument, and HMRC's conditions are written around the UK's ASA structure — non-refundable, interest-free, converting within six months into full-risk ordinary shares. UK startups wanting SEIS/EIS-compatible bridge money almost always use an ASA instead. [More: Can a UK company use a SAFE?]
When can the company file its SEIS1 after an ASA converts?
The SEIS1 compliance statement relates to the share issue, so it comes after conversion — and only once the company has traded for 4 months or spent 70% of the money raised. Investors then need their SEIS3 certificates before they can claim anything. [More: What are SEIS1 and SEIS3 forms?]
The difference between an ASA your investors' relief survives and one it does not is a handful of clauses — refundability, interest, variation, the longstop. A SuLe solicitor can review your ASA or note before signature, while every fix is still cheap. Book a free SEIS/EIS readiness call and get the instrument right first time.
Keep reading: What is an advance subscription agreement (ASA)? · ASA vs convertible loan note — what's the difference? · What is SEIS and how does it work? · SEIS vs EIS — what's the difference? · What are SEIS1 and SEIS3 forms?
Primary sources: HMRC — advance assurance for venture capital schemes · HMRC — Apply to use the Seed Enterprise Investment Scheme · HMRC — Apply to use the Enterprise Investment Scheme
