Articles17 May 2023
More disclosure on the cards for businesses
One downside to running a limited company is set to change
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Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS)
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are longstanding UK government schemes designed to help small, high-risk companies raise finance easier by offering tax relief to investors. If you can demonstrate that your company would qualify for EIS/SEIS relief for investors, then it should make raising equity finance easier.
EIS was first introduced in 1994 with the purpose of encouraging private investment into early-stage businesses through the provision of generous tax reliefs. SEIS was introduced in 2012 following the success of the EIS scheme to help encourage investment into even smaller and younger companies.
Is my company eligible?
Your company may be eligible to raise funding through EIS/SEIS if:
You can raise up to £5m a year through EIS investments and up to £12m over the company’s lifetime. You can receive up to £150,000 in funding through SEIS investments (this is increasing to £250,000 from April 2023).
The money received must be used for a qualifying trade, preparing to carry out a qualifying trade (which starts within two years of the investment) or R&D that’s expected to lead to a qualifying trade. It must be spent within two years of the investment or the start of trade (if later), it must not be used to buy all or part of another business and must pose a risk of loss to the investor.
The investment must meet HMRC’s ‘risk to capital’ condition. This means that your company must use the money for growth and development and the investment must be a risk to the investor’s capital, i.e. there is a risk that the investor will lose more capital than they are likely to gain as a net return.
You can raise funding through SEIS and then EIS but you cannot raise funding through SEIS once you have received an EIS qualifying investment.
What are the benefits for investors?
The main appeal of these scheme is the significant tax reliefs they offer to investors along with the chance to invest in the newest and most exciting businesses. The tax benefits include:
What are the next steps?
You can ask HMRC if they agree that any investment would meet the conditions of the scheme in advance of any investment. This is called Advanced Assurance and you can use this to demonstrate to potential investors that your potential investment would qualify, thus making it more attractive. You will need to send details of:
HMRC will then review the information sent and, if approved, will send you a statement saying that the investment is likely to qualify.
Once the investment has been made, you’ll need to submit a compliance statement to HMRC and demonstrate that nothing has changed since you applied for the Advanced Assurance (otherwise you will have to re-submit). HMRC will then give you permission to issue certificates to investors so they can obtain their tax relief.
How we can help
At Alliotts we are experienced in dealing with HMRC and can help your company in obtaining Advanced Assurance and then applying for compliance certificates once the investment is made. Please contact us for more information.
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