Enterprise Investment Scheme (EIS) is one of 4 venture capital schemes that can be used to raise money by a company.
What is the Enterprise Investment Scheme (EIS)?
Enterprise Investment Scheme (EIS) is designed so that your company can raise money to help grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Under Enterprise Investment Scheme (EIS), you can raise up to £5 million each year, and a maximum of £12 million in your company’s lifetime. This also includes amounts received from other venture capital schemes. Your company must receive investment under a venture capital scheme within 7 years of its first commercial sale.
You must follow the scheme rules so that your investors can claim and keep EIS tax reliefs relating to their shares. Tax reliefs will be withheld or withdrawn from your investors if you do not follow the rules for at least 3 years after the investment is made.
There are different rules for knowledge-intensive companies that carry out a significant amount of research, development or innovation, and either:
- – want to raise more than £12 million in the company’s lifetime
- – did not receive investment under a venture capital scheme within 7 years of their first commercial sale
Approved Enterprise Investment Scheme (EIS) funds
The rules for EIS-approved funds will be changing on 6 April 2020 to take account of the:
- – changes that will focus approved funds on knowledge-intensive investments
- – increased flexibility available to fund managers in the timing of investments
Read the draft guidelines to find out more about the amendment to the requirements for an EIS-approved fund.
What money raised can be used for
The money raised by the new share issue must be used for a qualifying business activity, which is either:
- – a qualifying trade
- – preparing to carry out a qualifying trade (which must start within 2 years of the investment)
- – research and development that’s expected to lead to a qualifying trade
The money raised by the new share issue must:
- – be spent within 2 years of the investment, or if later, the date you started trading
- – not be used to buy all or part of another business
- – pose a risk of loss to capital for the investor
- – be used to grow or develop your business
Companies that can use the EIS scheme
Your company can use the scheme if it:
- – has a permanent establishment in the UK
- – is not trading on a recognised stock exchange at the time of the share issue and does not plan to do so
- – does not control another company other than qualifying subsidiaries
- – is not controlled by another company, or does not have more than 50% of its shares owned by another company
- – does not expect to close after completing a project or series of projects
Your company and any qualifying subsidiaries must:
- – not have gross assets worth more than £15 million before any shares are issued, and not more than £16 million immediately afterwards
- – have less than 250 full-time equivalent employees at the time the shares are issued
Your company must carry out a qualifying trade. If you’re part of a group, the majority of the group’s activities must be qualifying trades.
Limits on money raised
Your company cannot raise more than £5 million in total in any 12-month period from:
- – Enterprise Investment Scheme (EIS)
- – Venture Capital Trusts (VCT)
- – the Seed Enterprise Investment Scheme (SEIS)
- – social investment tax relief (SITR)
- – state aid approved under the risk finance guidelines – check with the person who gave you the aid for advice
Your company cannot raise more than £12 million from these sources in your company’s lifetime. This includes any money received by any subsidiaries, former subsidiaries or businesses you’ve acquired.
Limits on the age of your company
You can receive investment under Enterprise Investment Scheme (EIS) as long as it’s within 7 years of your company’s first commercial sale. If you have any subsidiaries (including former subsidiaries) or businesses you’ve acquired, the date of your first commercial sale is the earliest of the group.
If you received investment in this period (under EIS, SEIS, SITR, VCT or state aid approved under the risk finance guidelines), you can use EIS to raise money for the same activity as long as you showed you were planning to do so in your original business plan.
If you did not receive investment within the first 7 years, or now want to raise money for a different activity from a previous investment, you’ll have to show that the money:
- – is required to enter a completely new product market or a new geographic market
- – you’re seeking at least 50% of your company’s average annual turnover for the last 5 years
Before raising your money
Your investors will only be able to claim tax relief if you meet the conditions for Enterprise Investment Scheme (EIS).
You can ask HMRC if your share issue is likely to qualify before you go ahead, this is called advance assurance.
How to apply for the Enterprise Investment Scheme
When you’ve issued your shares, you must complete a compliance statement (EIS1) and send it to HMRC.
How can MCL Accountants help?
Contact MCL Accountants on 01702 593 029 if you need any assistance with the Enterprise Investment Scheme (EIS), preparation and submission of your business accounts or self-assessment tax returns to HMRC.
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Ishan provides financial management, taxation and transactional advice to business entities of all sizes. His expert areas include statutory compliance, business taxation, personal tax & transactional processing and systems. Industry sectors include professional services, retail, hospitality and entertaining & media and advertising services.