EIS: Enterprise Investment Scheme
One of the best kept secrets forEntrepreneurs looking for equity investment.
Are you a small business seeking to explore the possibilities of attracting outside investment via an EIS Scheme? Alternatively you may be an investor looking for cost effective advice on the tax benefits of investing via an EIS and the ways to protect your investment via initial financial and other due diligence, enhanced voting rights, preference shares or dividends, a shareholders agreement or amended articles. Whichever is the case, we offer specialist advice in London and would be happy to talk things through with you.
Tax benefits of EIS
In summary, The Enterprise Investment Scheme (EIS) offers tax incentives by way of income tax and capital gains tax reliefs for investors who invest in smaller, unquoted, trading companies.
With Income Tax relief this is at a highly attractive flat rate of the cost of new shares, currently 30%. EIS schemes have proved popular, especially in high risk technology related companies, both for the company to attract investment and also for investors due to the very attractive tax reliefs. Around 25,000 EIS schemes were approved last year by HMRC.
What’s involved in setting up an EIS Scheme?
The key initial step is to prepare and submit an application to HMRC seeking EIS advance assurance. There are a number of technical requirements and HMRC will reject an application just based on a technicality so it pays to get experienced advice and assistance. We would be happy to assist.
Minimum and maximum amount that can be invested in EIS Scheme?
There is now no minimum amount an investor can invest in any company (although for many reasons, especially the fact that companies setting up an EIS Scheme are often seeking significant investment) but the current maximum is £1 million from any single investor.
The overall maximum amount that can be invested from all investors is £5 million.
What’s the difference between EIS and SEIS?
In basic terms the main difference is that5 the Seed Enterprise Investment Scheme (SEIS is very similar to EIS but for start-ups.
EIS disadvantages for investors
For a period beginning 2 years before the issue of EIS shares and the later of three years after the investment was made and the date the company commences trading, an individual investor cannot
- Be paid as an employee, partner, or director ; or
- Directly or indirectly possess or be entitled to acquire more than 30% of the ordinary share capital, or 30% of voting rights or 30% of the rights to assets on a winding up of the company or any subsidiary.
One of the biggest drawbacks to be aware of is being locked in – to obtain the tax benefits, EIS investors must retain shares for a minimum of 3 years. There is an exception to this for transfer of shares to a spouse or civil partner.
EIS Accountants in London
The above is a very basic summary of a complex area. We would be happy to advise whether you are a business considering an EIS Scheme or an investor interested in investing but looking for information and strategic input or financial or legal due diligence or advice. Our specialist team in London includes MBA level consultants and legal counsel with many years experience.
We offer fixed price EIS packages that aim to make the scheme available to all small businesses. If you would like to find out more, please get in touch.