EIS - Enterprise Investment Scheme

Introduced in 1993, the EIS scheme allows individuals to invest up to GBP 1,000,000 in any tax year and receive 30% tax relief (as long as you have the tax liability to cover it). It’s targeted towards wealthier, sophisticated investors, and helps smaller, high risk companies raise money by offering tax relief on new shares in eligible companies. Its a very tax efficient way to invest and if you have held the shares for at least 3 years and you make a profit on the sale of these shares, you don’t have to pay any Capital Gains Tax. Conversely, if you make a loss on the investment, you are able to claim further tax relief.

Some examples of how the EIS may work:

To simplify the math, lets assume in the following examples that

  • (1) you invest £10,000; and
  • (2) your income tax rate is at 45%.

Scenario: Your investment doubled and you hold the shares for three years

Investment £10,000
Income Tax relief £3,000 (as a reduction in your income tax bill)
Capital Gains Tax £0
Your gain £13,000 (£10,000 profit from the sale plus £3,000 income tax relief)
 

Scenario: The company’s value is the same and you sell

Investment £10,000
Income Tax relief £3,000 (as a reduction in your income tax bill)
Value of the share sale £10,000
Your gain £3,000 (from the income tax relief)
 

Scenario: You made a bad investment and the shares are worthless

Investment £10,000
Income Tax relief £3,000 (as a reduction in your income tax bill)
At risk capital £7,000
Loss relief on at risk capital @ 45% £3,150
Your actual loss £3,850
   

Criteria to Qualify for EIS relief:

  • an investor must own less than 30% of the company’s shares
  • the shares must be “ordinary shares” and not carry any preferential rights or be redeemable
  • the shares mist be fully paid up on issues
  • the company must be unquoted (unless quoted on an alternative market), not controlled by another company, have gross assets valued at less than GBP 15,000,000 before the share issue or GBP 16,000,000 after the share issue, and have less than 250 employees
  • If the company has previously issued SEIS qualifying shares, 70% of that SEIS investment must have been spent before the qualifying shares are issues
  • The company can raise no more than GBP 2,000,000 EIS qualifying funds in every 12 month period and the money must be spent within 2 years of used for R&D the company can not engage in a non-qualifying trade,

For more information on the EIS and SEIS schemes, look at the HMRC EIS Website at http://www.hmrc.gov.uk/eis/


Investor Note: The eligibility of any investment on InvestDen to qualify for tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned. Please note that the tax relief may be subject to change in the future. You should obtain independent tax advice before proceeding with your investment if you are uncertain about the availability of any tax reliefs, or the tax treatment of your investment.

SEIS - Seed Enterprise Investment Scheme

Introduced in April 2012 to help new companies in the UK, the generous SEIS tax relief applies to individual investors who buy new shares of early stage companies. Investors under this scheme, can receive initial tax relief of 50% on investments up to GBP 100,000 and receive a Capital Gains Tax exemption for any gains on these qualifying SEIS shares.

For a great overview of the SEIS Scheme, please watch the following video:

Thanks to www.seiswindow.org.uk for granting us permission to use the above video

Some examples of how the SEIS may work:

To simplify the math, lets assume in the following examples that

  • (1) you invest £10,000;
  • (2) your income tax rate is at 45%; and
  • (3) that capital gains tax is at 28%.
 

Scenario: Your investment Doubled

Investment £10,000
Income Tax Relief £5,000 (you get 50% of your investment back as a tax bill reduction)
Profit from sale £10,000
Capital Gains Tax £0 (if you have held the shares for three years)
Tax free return £15,000
 

Scenario: The company’s value is the same after three years

Investment £10,000
Profit from sale £0
Your gain £5,000 based on the tax relief in your income tax bill
 

Scenario: You made a bad investment and the shares are worthless

Investment£10,000
Income Tax Relief£5,000 (you get 50% of your investment back as an income tax reduction)
At risk capital£5,000
Loss relief£2,250 (45% of at risk capital)
Your actual loss£2,750 (£10,000 – [£5,000 + £2,250])

--> so on a £10,000 investment you only lost £2750

Carry Back

You can carry back your SEIS tax relief back to the previous tax year. An investor may elect under ITA07/S257AB(5) to have part or all of an issue of shares treated as though acquired in the tax year preceding that in which the shares were actually acquired. This is subject to the maximum annual investment limit for that earlier year (£100,000). The SEIS rate for the earlier year is then applied to the shares treated as acquired in the earlier year and relief given accordingly. This applies only for shares acquired in 2013-14 and later tax years. 


Advanced Assurance

To guarantee SEIS eligibility of a pitch featured on InvestDen, a business would have received an ‘advanced assurance’ – this is a certificate emailed to the investor by HMRC confirming that investors will benefit from SEIS. You can claim your tax relief once the business has been trading for a minimum of four months or has spent 70% of the investment they received. The SEIS relief can be claimed up to five years after the 31st January in the year you made the investment.  When the company you’ve invested in has been trading for four months or spent 70% of the total investment, the company must submit form SEIS1 to the Small Companies Enterprise Centre. Once SEIS1 has been reviewed and the requirements met, the Small Companies Enterprise Centre will issue a copy of form SEIS3 for every investor. These are sent to the applicant company and the company should provide them to each investor to complete and submit as part of their tax return. 


Criteria to Qualify for SEIS Relief:

  • An investor must own less than 30% of the company’s shares
  • The shares must be “ordinary shares” and not carry any preferential rights or be redeemable
  • The shares must be fully paid up on issue
  • The company must be unquoted and have total gross assets of less than GBP 200,000 and less than 25 employees.
  • the company can not:
    • be operational for more than 2 years;
    • have previously used the EIS scheme;
    • raise more than GBP150,000 in the SEIS fundraise; and
    • be engaged in a non qualifying trade.

Investor Note: The eligibility of any investment on InvestDen to qualify for tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned. Please note that the tax relief may be subject to change in the future. You should obtain independent tax advice before proceeding with your investment if you are uncertain about the availability of any tax reliefs, or the tax treatment of your investment.