The investor
The qualifying company
Outline of the scheme rules
Qualifying trades
Spreading your risk
Conclusion
The EIS is a government scheme that allows certain tax reliefs for investors who subscribe for qualifying shares in qualifying industries.
What benefits does the Enterprise Investment Scheme provide the investor and companies wishing to raise new finance?
As a result of the above, an individual could have a total tax saving and deferral of 60% of his investment.
Spreading your risk
Investors who do not want to put all their eggs into one basket could consider an EIS approved investment fund or a venture capital trust (VCT).
Approved investment funds are collective investment vehicles employing a fund manager to invest subscribers' money in qualifying companies. The fund manager brings together the total investment of a number of investors over a number of companies.
The main condition is that the scheme be limited to companies with gross assets of less than £15 million before, and no more than £16 million after the investment. The company must have fewer than 250 equivalent staff. Please contact us for shares that fall outside of these criteria.
Throughout its relevant 3-year qualifying period, the company must:
In addition:
The definition of qualifying trades is quite extensive, but certain activities (such as most dealing operations, banking, leasing, legal, and accounting services) are specifically excluded, as are those considered to be 'asset backed' (farming, forestry, property development, hotels, and nursing homes). Excluded activities also include shipbuilding and steel or coal production. More recently certain trades generating or exporting electricity which will attract a Feed-in Tariff are also excluded.
Generally speaking, knowledge-intensive companies meet additional conditions associated with research and development spend and the creation of intellectual property.
Comparison between VCT, EIS and SEIS.
The scheme is becoming more and more popular, and currently there appear to be more potential investors than there are opportunities. As may be expected, the tax breaks have been introduced by the government to encourage would-be investors in what, given the nature of the investment companies concerned, must be inherently risky ventures. However, readers with an entrepreneurial spirit, surplus cash and the appetite for a healthy payback, may be interested to learn more.