If you’re a business owner searching for outside equity investors, or an investor looking for advice on the tax benefits of EIS investments, you’ll want to read this article.
Enterprise Investment Scheme (EIS) is a UK government scheme designed to provide tax relief for business expansions.
In this article, we’ll discuss what you need to know about EIS, including how it can benefit your business.
What is the Enterprise Investment Scheme (EIS)?
The Enterprise Investment Scheme (EIS) is a UK government scheme that offers tax relief to investors who invest in small, early-stage companies.
The scheme is designed to encourage investment in businesses that are considered to be high-risk, and therefore may have difficulty raising capital from other sources.
What are the Benefits of EIS?
There are several benefits of EIS, both for businesses and investors. For businesses, the scheme can provide much-needed capital to help them grow and expand. For investors, the scheme offers attractive tax incentives that can boost returns.
If you’re considering using the Enterprise Investment Scheme to raise capital for your business, or investing in an EIS-qualified company, it’s important to seek professional advice to ensure that you comply with the rules and regulations of the scheme.
How Does EIS Work?
Under the scheme, investors can receive up to 30% tax relief on their investment, as well as other benefits such as capital gains tax exemption and inheritance tax relief. To qualify for EIS, businesses must meet certain criteria, including being unlisted and having fewer than 250 employees.
You can raise up to £5 million each year under EIS and a maximum of £12 million throughout your firm’s existence. This includes amounts received from other venture capital schemes.
In order to qualify for development assistance under the Enterprise Investment Scheme, your firm must receive venture capital investment within seven years of its initial commercial sale.
How to Apply for EIS as a Business?
To take advantage of the scheme, you must submit an application to HMRC for EIS advance assurance.
You must complete a compliance statement (EIS1) and send it to the HMRC, along with supporting documents. The compliance statement and other documents can be either posted or sent via email.
The important documents include the business plan and financial forecasts of your company, copy of the latest accounts, shareholder documents, etc. Note that you have to submit a separate application for each share issue.
If your application is successful, you’ll receive compliance certificates (Form EIS3) and a letter from HMRC that you can show your investors.
HMRC has several requirements you need to fulfil and can reject applications if they are filled incorrectly. For example, your company can not be trading on a recognised stock exchange and can not plan to do so in the future if you intend to apply for the EIS.
Tips for Setting Up an EIS
If you’re interested in setting up an Enterprise Investment Scheme for your business, there are a few things you need to do:
- Speak to a professional adviser to ensure that your business meets the criteria for EIS and that you understand the rules of the scheme.
- Prepare a business plan outlining your company’s development strategy.
- Choose an EIS provider, such as a venture capital firm or an investment bank.
- Complete the necessary paperwork and submit it to HMRC.
How to Apply for EIS as an Investor?
If you’re an investor interested in taking advantage of the Enterprise Investment Scheme, you must first invest in an EIS-qualified company. You can do this by buying shares in the company, or investing through a venture capital trust (VCT) or Enterprise Investment Scheme fund.
Once you’ve made your investment, you’ll need to complete an Investor Self-Assessment tax return to claim your tax relief. You can do this online through the HMRC website.
When applying for EIS as an investor, it’s important to keep records of your investment, such as share certificates, bank statements, and investment contracts. These will be needed when you complete your tax return.
To conclude, the Enterprise Investment Scheme can be beneficial for both businesses and investors. If you’re considering using the scheme, it’s important to seek professional advice to ensure that you comply with the rules and regulations. Enterprise Investment Scheme solicitors can help you navigate the application process and give you the best chance of success.
For more information on the Enterprise Investment Scheme, contact us today.
