Newsfeed Search



Unlocking Tax Benefits with the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)
09/04/2024

The Enterprise Investment Scheme (EIS) is an initiative designed to incentivize investment in burgeoning, unquoted companies, while offering substantial tax benefits to individual investors. This scheme not only fosters innovation but also supports economic growth by channelling funds into promising ventures. So, let’s learn more about what EIS is, who can qualify, and how tax relief can be claimed through this scheme.

 

Understanding EIS:

EIS facilitates income tax relief and capital gains tax reliefs for individuals who invest in newly-issued shares of eligible unquoted companies. However, to receive these benefits, several conditions must be met:

  1. The Risk-to-Capital Condition: This overarching condition requires the issuing company to demonstrate a commitment to long-term growth and development of its trade. Additionally, there must be a significant risk of capital loss greater than the net investment return.

 

  1. Share Requirements: Shares issued under EIS must be ordinary shares without preferential rights to dividends or assets. Furthermore, they must be subscribed for wholly in cash and fully paid up at the time of issue.

 

  1. Qualifying Investor: The investor must not be connected with the issuing company – this means they can not be an employee/director of the company or own more than 30% of the share capital/voting rights.

 

  1. Qualifying Company: A qualifying company must have a permanent establishment in the UK through which the business of the company is wholly or partly carried on.

 

If unsure whether they will qualify a company may apply to HMRC for assurance, in advance of a share issue, that it will meet the qualifying conditions of the EIS.

Application should be made using Form EIS/SEIS(AA) available at: www.gov.uk/government/publications/enterprise-investment-scheme-advance-assurance-application-eisseisaa

 

Claiming Tax Relief:

Income tax relief under EIS is granted for the tax year in which the shares were issued (but can be carried back 1 year). This relief is provided through a reduction in the individual's income tax liability, at a rate of 30% of the amount invested.

 

Investors can choose to restrict their claim to EIS relief for a single issue of shares, allowing relief only for some of the shares issued. Additionally, investors have the option to carry back relief to the preceding tax year, subject to annual maximum limits.

 

But EIS doesn’t just provide income tax relief. If an investor holds EIS shares for at least three years, any capital gain realised on the disposal of the shares will be capital gains tax free, provided income tax relief has been given and has not been withdrawn.

 

How SEIS Differs from EIS:

While EIS and SEIS share similarities, SEIS is tailored for smaller, early-stage companies which are those with 25 or fewer employees and assets of up to £350,000 (£200,000 before 6 April 2023)

 

SEIS offers income tax relief of up to 50% on share subscriptions as opposed to 30% with EIS. This is subject to a maximum of £200,000 investment per tax year. Additionally, SEIS allows for chargeable gains on disposals of shares to be exempt from Capital Gains Tax (CGT), provided the shares are held for 3 years.

 

Conclusion:

The Enterprise Investment Scheme (EIS) serves as a powerful tool for both investors and budding companies. By understanding the eligibility criteria and the process of claiming tax relief, investors can make informed decisions to support promising ventures while benefiting from significant tax advantages. With the right guidance and compliance with HMRC regulations, EIS offers a pathway to unlock substantial tax benefits while contributing to the growth of the UK's entrepreneurial landscape.

The Enterprise Investment Scheme (EIS) is an initiative designed to incentivize investment in burgeoning, unquoted companies, while offering substantial tax benefits to individual investors. This scheme not only fosters innovation but also supports economic growth by channelling funds into promising ventures. So, let’s learn more about what EIS is, who can qualify, and how tax relief can be claimed through this scheme.


JUMP TO TOP

Focus Accountancy Ltd - Registered in England and Wales - CRN: 06377770 - Registered Office: 1 Lindsay Road, Bristol, BS7 9NP