Enterprise Investment Scheme (EIS)

The Enterprise Investment Scheme (EIS) is one of four venture capital schemes, others of which include the Seed Enterprise Investment Scheme (SEIS), Social Investment Tax Relief (SITR) and Venture Capital Trusts (VCTs).

The EIS provides funding for newer businesses in the UK, as well as providing investors with an incentive, in the form of tax reliefs, to invest in businesses that may be high-risk. There are multiple different types of EIS reliefs available for investors, including income tax relief, capital gains tax exemption, and capital gains tax deferral.

If your business qualifies for the Enterprise Investment Scheme, you can raise up to £5 million each year, and a maximum of £12 million over the course of your company’s lifetime. This funding is an excellent way to help your business boost growth and development.

 

Does my business qualify for the Enterprise Investment Scheme?

In order to qualify for the Enterprise Investment Scheme, your business must meet wide a range of criteria. This includes the following (please note this list is not exhaustive):

• Your business must be permanently established in the United Kingdom
• The business must carry out a trade that qualifies for the scheme. There are certain trades, such as farming, property development and coal production, which are not eligible for the scheme (please note these examples are not exhaustive).
• Your business must have a maximum of 250 employees, unless your company is considered “knowledge intensive”, where this rises to 500
• You must have no more than £15,000,000 in gross assets
• Your business must not be listed on a recognised exchange
• Your business must be no more than 7 years old, or 10 if your business is considered “knowledge intensive”

Knowledge intensive refers to a business that is carrying out research, development or innovation at the time it is considering becoming part of an EIS.

Eligibility for income tax relief is restricted to companies with which you are not ‘connected’ at any time during a period beginning two years before the issue of the shares and ending three years after that date, or three years from the commencement of the trade if later.

As the Enterprise Investment Scheme requirements are continually subject to change, it is essential for you to contact a chartered accountant or tax specialist in order to ascertain whether your business is eligible.

 

What are the Enterprise Investment Scheme Tax Benefits?

The Enterprise Investment Scheme (EIS) offers a range of tax benefits designed to reduce the risks and enhance the rewards of investment, including:

 

Income Tax Relief

Investors can claim up to 30% income tax relief on EIS investments – up to £1 million per tax year. It increases to £2 million if investments above are made in ‘knowledge-intensive companies.

 

Capital Gains Tax Exemption

A big attraction is that any money raised from your investment is free of any tax treatment. To qualify for this exemption of CGT, any income tax relief must have been claimed already.

 

Capital Gains Deferral

Investors can delay paying tax on gains from other assets by reinvesting them into an EIS-qualifying company,12 months before or three years after the gain.

 

Inheritance Tax Relief

EIS shares qualify for 100% inheritance tax relief if held for at least two years before death. These shares can be passed on to beneficiaries tax-free.

 

Loss Relief

If the investment fails, losses (after income tax relief) can be offset against current or previous income tax bills.

 

How Edwards Chartered Accountants can help

The Enterprise Investment Scheme (EIS) comes with a range of complex rules to ensure that investors cannot claim the full benefits of EIS reliefs if they receive value from the company within a specified period.

Our team of experienced taxation specialists can help investors navigate these rules and make the most of the tax reliefs available through the scheme.

We also have extensive experience assisting companies in achieving EIS compliance, helping them secure vital funding during key stages of growth.

If you’d like to find out more about how we can help, please contact our team today.

 

Get in touch with a specialist: