A brief look at EIS & SEIS tax relief for venture capitalists in the UK

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Raising money to expand the scope of your established business or to finance the realisation of a dream company you’ve been thinking about for years are two sides of the same coin. They’re both tied to the problem of finding investors and capital.

With the government’s renewed focus on growing businesses fast to reinvigorate the market, HMRC has made some major changes in its policy for venture capital tax reliefs. In the paragraphs that follow, we talk about these opportunities to avail tax reliefs and discuss the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

THE NEED TO LOOK INTO EQUITY PARTNERS FOR YOUR COMPANY

With HMRC’s tax relief schemes for venture capital investors, businesses who aim to grow significantly fast in relatively less time have a great opportunity to find the capital. As long as you’re ready to have an equity-based partnership with an investor, this could potentially be the best thing that could happen to your business in current, troubling times.

This prospect is rife with benefits because venture capitalists are cautiously looking for viable investment opportunities in these times, and, with the many benefits these tax reliefs offer, these investors are ready to be persuaded.

THE 2 MOST TALKED ABOUT VENTURE CAPITAL TAX RELIEF SCHEMES IN THE UK

Here’s a brief overview of what benefits EIS and SEIS have in store for venture capital investors and businesses they’re investing in.

  1. Enterprise Investment Scheme – EIS

If you’re in too much of a hurry to get into any details, you must at least know that it works for unquoted trading enterprises. As such, these type of companies can entice investors to provide capital for their business expansion and growth plans with tax benefits that sometimes sound too good to be true.

To start with, investors can avail up to 30% income tax relief. Capital Gains Tax (CGT) can be deferred if you dispose of an asset and use the gain to invest in shares in a company that is EIS eligible. If you hold shares for a minimum of 3 years, you may be entitled to a CGT exemption on the profits earned on the shares.  Any loss made on an EIS investment may be offset against other income either in the tax year when the loss is realised or the previous tax year. Capital investors also get a complete exemption from inheritance tax under EIS.

While these benefits sound quite interesting, you should know that to qualify for EIS, your company must meet the eligibility criteria. You must have 250 or fewer full-time equivalent employees, gross assets valuing under £15 million, and be in the selected set of industries that can qualify for this scheme. These requirements are a few of many.

  1. Seed Enterprise Investment Scheme – SEIS

SEIS is designed to assist start-ups and find these enterprises seed money for the company they’ve been dreaming about.

This scheme aims to encourage innovation and support starting up businesses that could create viable employment opportunities.

It also offers greater benefits to investors in comparison with EIS, including greater income tax relief of up to 50% and CGT exemption up to 50% if you dispose of an asset and re-invest in the same tax year. However, EIS allows for higher investment limits.

To be eligible for SEIS, your business needs to have 25 or fewer employees and fulfil a selection criteria.

If you’re managing a start-up or thinking about expanding your business, get advice from iTax Solutions and discuss what might be the best course of action for you.