Enterprise Investment Schemes (EIS)
95% of firms in the UK have less than 10 staff and in times of growing economic uncertainty, it is to these small businesses the government is turning to provide a welcome boost for our economy.
The one issue many small start ups have however is gaining worthwhile investment. Companies who are listed on the stock exchange will have an easier time finding investors as opposed to those companies who are not, this is where the Enterprise Investment Scheme (EIS) comes in.
The Government is well aware that investment in companies not listed on the stock exchange is smaller when compared to those which are, this is because of the risk factor involved. Due to this a series of tax reliefs are offered to encourage investors to share some of the risk.
What type of tax reliefs are offered?
There are two types of tax relief the EIS can offer and they can be found below,
Income Tax Relief
- The minimum subscription for each investor is £500 per company and the maximum is £1,000,000 per annum.
- Investors who have less than a 30% share in the company can reduce their income tax liability by an amount which is equal to 30% of their share subscription.
Capital Gains Tax Relief
- Deferral of gains can be realised on assets providing they were either disposed of less than 12 months prior, or less than 36 months after the EIS investment. This relief is not limited to investments of £400,000 per annum and can be claimed by investors whose interest in the company exceeds 30%.
- Even if you were to sell the shares at a loss, such loss can be set against the investor’s capital gains or their income in the year of disposal.
- There is no capital gains tax payable on disposal of shares after three years, this is provided that the EIS initial income tax relief was given and not withdrawn on those shares.
Who can qualify?
The rules for qualifying can be quite complicated, however here we have broken them down in to two different sections, and the specific requirements for each can be found below,
- The entry in to the scheme is subject to a decision and audit to be completed by an appointed tax officer.
- The company must not have assets greater than £7 million.
- All capital gained must be actively engaged in the company within 24 months.
- The company must not be listed or have any intention of being so at the time of the investment.
- The investor may not have more than a 30% interest in the company.
- The investor must not have any other form of controlling interest in the company.
- The investor must not have any form of preferential shares.
- No partner or associate may have other interests in the company.