EIS: Enterprise investment scheme
- Helen Curtis
- Updated: Mon, 21st Nov 2016
EIS de-risks investment by offering investors generous EIS tax reliefs. Although tax-rates are rising, the Government appears keen to provide investors with EIS tax breaks. We help you attract investors by securing EIS relief for you.
Our EIS services include:
EIS: The attractions
The EIS scheme is attractive to investors. Latest government statistics show:
- 24,620 companies received investment via EIS raising £12.2 billion of funds;
- 25% increase in the number of companies which raised funds in 2014-15 as compared with 2013-14;
- The majority of investment through EIS was investment into companies for the first time;
- 72% of companies which received EIS investment were in high-tech, energy and water and business services sectors.
Obtaining EIS advance assurance
Applying and obtaining HMRC advance assurance for EIS relief may seem daunting. We have the experience. Our fees are sustainable and we aim to build a long term relationship with you.
HMRC do not accept error excuses. This means if you do not file the right information on the right form the company will not qualify for EIS. HMRC are unconcerned that none of your investors will benefit for EIS tax relief if you filed incorrectly.
We provide a one stop service for businesses that can include:
- Review of eligibility for EIS;
- EIS advance assurance from HMRC;
- Draft or review of articles and shareholders’ agreement; and
- Holding of funds on client account pending closing of the investment round.
EIS starter pack
We offer EIS services in a flexible way tailored to your requirements:
- Fixed fee service for production of the EIS advance assurance application (£950 plus VAT) and bespoke articles and shareholders’ agreement (£2,200 plus VAT); or
- No win no fee basis under which you pay our fees once we have obtained EIS advance assurance and you have raised the initial funds (£4,500 plus VAT).
The reliefs available to EIS investors include:
- Income tax relief: of 30%, up to a yearly investment amount of £1 million;
- CGT exemption;
- Deferral of CGT when certain assets are sold and the funds reinvested in EIS shares.
- Shareholder rights: especially focussing on anti-dilution provisions within the EIS parameters. We review the corporate documentation – mainly the shareholders agreement and articles of association;
- Ability to obtain EIS relief.
EIS qualifying conditions
To determine whether EIS is available there are three areas to consider:
- Will the funds be used for a qualifying purpose?
- Is the company that offers EIS relief a qualifying company?
- Is the investor a qualifying investor?
Qualifying EIS purpose
There are two issues:
- The application for shares must not constitute tax avoidance and must be for true commercial purposes;
- The funds raised must be used for a qualifying trade e.g. property development and activities of a financial nature are excluded.
Qualifying EIS investor
The shareholders must meet the following requirements:
- The shareholder cannot hold more than 30% of the company’s shares, either on his own or with associates;
- The shareholder cannot have been an employee or remunerated director of the company prior to acquiring the shares. However, the investor may become a paid director after becoming a shareholder.
- The shares should be held for over 3 years;
- The shares cannot have any preferential rights (even if insignificant) to the company’s assets on winding up.
Qualifying EIS companies
There are requirements around the company’s size and status:
- The company’s gross assets must not be more than £15m directly prior to the allotment of the shares and £16m directly after such allotment.
- The company cannot be a quoted company at the time the shares are allotted.
- The company cannot be a subsidiary of another company (where that other company holds more than 50% of the shares in the company)
- The company must have fewer than 250 employees
- The company cannot raise more than £5m in total over a 1 year period under EIS
- The funds raised must be used for the qualifying trade.
£20 million: knowledge intensive companies lifetime EIS investment limit
A company has always been able to raise up to a £15 million lifetime limit, via any combination of SEIS, SEIS or VCT. For knowledge-intensive companies, this rises to £20 million, and the employee limit from 250 to 500 employees, if the company meets:
- R&D spending requirements;
- An innovation condition,
- A skilled employees condition.
No SEIS spending or wait requirement
Until recently, if a company wished to raise additional EIS investment having first raised investment via SEIS, then the company was required to first spend 70% of the SEIS funds and there used to be an additional wait period. These requirements have been removed.
Factors which will deny EIS relief
In effect, investors must now seek EIS relief in a company from the start. It is difficult to obtain EIS relief when making an additional investment in a company where the investor already holds shares.
Restrictions on the investor
Any EIS investors’ shareholding has always been restricted to 30% of the total. Now an investor only gets EIS relief for the additional investment if:
- The other shares the investor holds are part of an issue of shares in respect of which the company has submitted an EIS or SEIS compliance statement, or
- Where those shares are subscriber shares.
Company must be under 7 years old
Investors can no longer invest in a company that is more than 7 years old. Clearly this change restricts investment opportunities for older companies. There are a couple of exceptions: e.g. if the investment
- Will lead to a substantial change in the company’s activity;
- In total, represents more than 50 per cent of turnover averaged over the preceding five years.
Intention to grow and benefit a business
Qualifying for EIS relief includes a new “intention to grow and benefit a business” hurdle. This hurdle won’t concern genuine businesses, who will clearly comply. However, it is not known how HMRC will deploy this new weapon.
EIS track record
- Gannons worked with an app developer seeking EIS investment to enable it to become one of the leading providers of download games from the app stores
- We worked with a technology company seeking both UK and US investors in structuring the deal to offer the EIS investment to the UK investors only
- Gannons was instructed to review a situation where an EIS compliance statement was rejected for inclusion of a put-option
- We worked with a restaurant looking to raise further investment via the EIS scheme
Please do get in touch with us to discuss SEIS or EIS investment. We can help you if you are the company seeking investment or if you are an investor considering a SEIS or EIS investment. We are practical and deal with all aspects relating to qualification for SEIS or EIS, tax reliefs for investors and the business contract documentation including articles and the shareholders agreement. We also handle the HMRC processes for you.
Many great businesses started out under EIS. We work with investee companies and investors to ensure full benefit of the generous tax advantages are secured. Why not call or email me to arrange an informal discussion.