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Enterprise Investment  schemes (EIS)

Tax relief for investors in your company

If your company qualifies as an eligible company under the EIS rules - and most do - then any eligible investor such as a business angel can obtain tax relief worth 30% of the investment (20% before 6 April 2011). In other words the real cash cost of their investment in your company could be only 70% of the amount invested, because subsequently they get 30% back when they do their tax return.

EIS investors can invest in companies with as many as 250 employees and gross assets of up to £15m (up from the previous level of 50 staff and gross assets of £7m). Companies are now able to take up to £10m of investment a year under EIS.

To enable such a scheme for your company, you need to take various steps including applying to HMRC for advance assurance that your company qualifies. Then you need to ensure that each individual investor qualifies, and post-investment there are various forms and information required by HMRC.

We can set all this up for you. We have enabled EIS for plenty of companies and the good news is that we will undertake the work at a realistic and economic cost.

The new Seed investment scheme - see below.

Fees - see our fixed fee guide here

Please contact us here

Technical tax information:

        Income tax relief -  Provided an EIS qualifying investment is held for no less than three years from the date of issue, or  until three years from commencement of trade, if later, an individual with no more than a 30% interest in the company can reduce their income tax liability by an amount equal to 30% of the amount invested (20% before 6 April 2011). The minimum subscription is £500 per company and the maximum in respect of which a subscriber may obtain income tax relief  in any year is £500,000 (£1 million from April 2012).  Relief is limited to the amount which reduces the individual's  income tax liability for the year to nil.  Individuals may elect to treat their subscription for EIS shares, up to their maximum annual allowance, as if made in the previous tax year, thereby effectively carrying income tax relief back one year.  
        CGT Deferral Relief - Tax on  gains realised on a different asset can be deferred indefinitely, where disposal of that asset was less than 36 months before the EIS investment or less than 12 months after it.  Deferral relief is unlimited, in other words, this relief is not limited to investments of £500,000 per annum and can also be claimed by investors (individuals or trustees) whose interest in the company exceeds 30%. 
        CGT Relief - No Capital Gains Tax payable on disposal of shares after three years, or three years after commencement of trade, if later,  provided the EIS initial income tax relief was given and not withdrawn on those shares.
        Loss Relief - If EIS shares are disposed of at any time at a loss (after taking into account income tax relief), such loss can be set against the investor's capital gains, or his income in the year of disposal or the previous year.  For losses offset against income,  the net effect is to limit the investment exposure to 48p in the £1 for a 40% tax payer or to 40p in the £1 for a 50% tax payer, if the shares become totally worthless.  Alternatively the losses can  be offset against Capital Gains at the prevailing rate of 18% or 28% as applicable.
        Inheritance Tax Relief - Shares in EIS qualifying companies will generally qualify for Business Property Relief for Inheritance Tax purposes at rates of  up to 100% after two years of holding such investment, so that any liability for Inheritance Tax is reduced or eliminated in respect of such shares.

Excluded activities/trades -
If the activity below consists of the substantial part of the company's activities, it is likely to be ineligible for EIS -
note that the references in brackets are to the detailed HMRC guidance - Google HMRC+reference to view -

• dealing in land (see VCM17050),
• dealing in commodities (see VCM17060), futures or (subject to exceptions for wholesaling and retailing) goods (see VCM17070),
• dealing in shares, securities or other financial instruments,
• banking, insurance, money lending, debt factoring, hire purchase financing or other financial activities (see VCM17100),
• leasing, including the letting of assets on hire (see VCM17110) - subject to a waiver for certain lettings of ships on charter (see VCM17320),
• receiving royalties or licence fees (see VCM17120) - subject to waivers in certain cases (see VCM17310),
• providing legal or accountancy services (see VCM17130),
• property development (see VCM17050),
• farming and market gardening (see VCM17140),
• activities concerned with forestry and timber production (see VCM17150),
• shipbuilding (see VCM17155)
• coal production (see VCM17156)
• steel production (see VCM17157)
• operating or managing hotels and similar establishments (see VCM17160),
• operating or managing nursing homes and residential care homes (see VCM17170),
• providing services or facilities for any trade carried on by another person (other than the parent of the company), in certain circumstances (see VCM17250).

Seed Enterprise Investment Scheme (SEIS)

SEIS is a new tax-advantaged venture capital scheme, similar to the Enterprise Investment Scheme (EIS).  It will focus on smaller, early stage companies carrying on, or preparing to carry on, a new business in a qualifying trade.

 New proposals include:
 

·       The relief will initially run from 6 April 2012 until 5 April 2017 but may continue after that date.
 

·       Income tax relief on a qualifying investment will be 50%.  The relief is available to be set against any income tax liability that is due, whether at basic, higher or additional rate.
 

·       Income tax relief will be withdrawn in certain circumstances including a disposal of the shares within three years.
 

·       There will be an annual limit of £100,000 investment by an individual.
 

·       A director may make a qualifying investment but not an employee or an associate of an employee.
 

·       An individual may not hold more than 30% of the shares in the company.
 

·       The issuing company must have been incorporated within two years of the date on which the qualifying shares are issued.
 

·       The company must exist to carry on a qualifying trade.
 

·       The gross assets of the company (including a proportion of assets of companies which hold at least 25% of the shares in the issuing company) must not exceed £200,000 immediately before the shares are issued.
 

·       The issuing company must not have more than the equivalent of 25 full-time employees immediately before the shares are issued.
 

·       The maximum amount which can be raised by a company through SEIS is £150,000 and this is an overall total not an annual limit.
 

·       Subject to conditions, the disposal of SEIS shares will be exempt from CGT.
 

 

Where an individual makes a capital gain in 2012/13 and invests an amount which is at least equal to the gain in qualifying SEIS shares before 6 April 2013 then the gain will be exempt from CGT. If the shares fail to meet the qualifications for SEIS for three years then the exemption will be withdrawn.