EIS is a term which means Enterprise Investment Scheme. This scheme is a measure put in place by the UK government to promote investment. What does this mean for business owners and small enterprises? The scheme is a tax relief incentive meant to make purchase of company’s shares attractive thereby attracting potential investors.
EIS relieves investor of 30 percent of what would have been paid. The result of this is that the amount payable as income tax for that year by such investor will reduce. Also, there is an exemption for capital gains tax payable on the shares purchased whenever the investor decides to sell. Meanwhile, the amount of relief which an investor can lay claim to every year is not more than £300,000.
There are however roles to play on the part of the company and the investor in order to qualify for enterprise investment scheme. Stipulated regulations must be adhered to. The regulations which have been put in place are necessary in order to ably maintain the objective of the scheme and stifle any abuse by business owners and investors.
One of the regulations requires the investors to pay for the shares as soon as they are purchased. It should be noted that any share that is purchased without effective and immediate payment does not qualify for EIS tax relief. Another regulation is that the investor must have the shares for a minimum of three years. Meanwhile, the purchased shares must be an ordinary share that has the same level of risk of investing in the company.
On the other hand, the scheme does not permit individuals with existing financial interest in a company to enjoy tax relief. Also, EIS does not give room for any selfish tax arrangement. It could, for example, become a loss on an investor’s part if he solely invested in investor B’s company on the condition that he would invest in his. EIS does not encourage such.
In order to lay claim to Enterprise Investment Scheme tax relief, concerned tax payers need to receive Form E13 from the company whose shares they are purchasing. On this note, it should be noted that in case of bankruptcy or any loses, the investors will also lose their claims to EIS tax relief. Therefore, it is important for you to understand the activities of a company before investing in it.
At Nordens, we usually warn our clients against making uninformed choices. The desire to enjoy EIS tax relief should not be a reason to sacrifice adequate and critical decision-making. We are always available to help you make informed decisions on how to carefully enjoy EIS tax relief. Although business is a risk, nothing should stop you from doing your homework well. That is why Nordens is here for everyone.
As a means of raising capital for start-ups, let’s help your business establish proposals that will help them meet the regulations of EIS. Our team of professional accountants will complete all paperwork requirements and get you the certificate without delay.
Enterprise Investment Scheme is a tax relief measure adopted by the government in 1994 to help startups raise capital. EIS is also an investor’s secret to enjoying good return on investment (ROI). You may be wondering what the scheme has got to do with investors. Well, while trying to encourage small business enterprises, the scheme also attracts a company’s potential investor by issuing them tax relief. Although investing in a company with EIS certificate involves a higher risk, it is also possible to enjoy amazing returns on investment if informed decisions are made through the help of an investment advisor or expert.
It is not all businesses that qualify for Enterprise Investment Scheme. In order to qualify, a company or social enterprise must be permanently established in the United Kingdom. Also, it must be involved in a trade that qualifies. A trade qualifies if about 20% and more of its activities include things like leasing, research and innovation, legal or financial services, production of gas, banking and insurance, among others.
Also, other criteria for qualification are that the company must be ready to spend the investment on a qualifying trade and must be under the control of another company.
Knowledge-intensive companies are those companies that are engaged in carrying out research, innovative works and ground breaking development projects during the period when they are issuing shares. This knowledge-based trade must however be the company’s main business focus within the next ten years or that about 25% of its employees are engaged in research and innovation while the shares are issued. Potential investors focus on these companies because they attract a special attention and status under enterprise investment scheme. This special status makes it possible for them to raise more investment than the companies that are not.
Tax breaks are measures put in place to reduce a taxpayer’s liability and make room for savings. Tax breaks reduce the amount of money payable as tax by individuals and most especially, companies. Methods of tax breaks are tax deductions from gross income to reduce the taxable income, tax credits, tax exemptions or eliminations and others. One of the objectives of tax breaks is to help the government improve the economy. This is because during tax breaks, the amount of money which tax payers have will increase and it will enable them to have a higher purchasing power.
There is no designated minimum amount of money that you can invest in EIS although the amount will eventually depend on the investment manager. As an investor, you can put a maximum of £1m or £2m or more in enterprise investment scheme qualifying business. It must be the kind of money which you don’t intend to have access to in a short period of time but if it goes beyond that, you may not enjoy income tax relief on the extra investment. However, it does not stop you from enjoying other tax relief benefits.