Investment

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As far back as the 1980s, the United Kingdom was forward-thinking about assisting small and midsize businesses. The economic climate then was similar to today’s – securing funding via traditional means was difficult for companies that were not listed on a stock exchange.

In 1983, the UK launched the Business Expansion Scheme (BES), but it was phased out less than a decade later because it had mixed results. BES was followed by a new program, the Enterprise Investment Scheme (EIS).

What Is EIS?

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The Enterprise Investment Scheme is a UK tax relief program that was launched in 1994 to help both companies and investors. Its expressed purpose is to assist unquoted (those not on a stock exchange) trading companies to realise small amounts of capital. Because such companies carry higher risk, obtaining needed operations and expansion funds is challenging, and EIS aims to help with that.

EIS investors are offered both capital gains and income tax relief when they buy shares in qualified companies. Here is a more complete list of tax reliefs for EIS investors:

  • 100 percent Inheritance Tax Relief (investments must have been held for two years prior to death)
  • 30 percent Upfront Income Tax Relief to a maximum investment of £1 million (can be carried back to the prior tax year)
  • Capital Gains Deferral for total life of the investment
  • Tax-free Growth of the investment
  • Relief from investment losses

What Is SEIS?

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The Seed Enterprise Investment Scheme is an addition to the EIS program, and it was launched on 6 April 2012 with the goal of helping entrepreneurs and startup businesses, as well as an effort to kick-start the economy.

Investing in EIS and SEIS

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There are many criteria that must be met by both the companies that seek investment dollars from EIS and SEIS and the investors themselves.

The program is complicated, and not following it properly can result in investors losing their tax relief status and having to pay penalties and other costs. Take a look at the program requirements for potential investors:

  • An investor cannot have more than 30 percent interest in a company.
  • Investors cannot invest in a company that they, their associates or their relatives have interests in. This includes their spouses and business associates, as well.
  • An investor cannot have any type of preferential shares.
  • The investor must not be using this scheme to avoid taxation.
  • No investor can have any other form of controlling interest in the company.

For the companies that require working capital and seek those EIS or SEIS investment dollars, there are rules as well:

  • Assets of the company cannot be greater than £15 million.
  • The company can employ no more than 250 full-time or full-time equivalent employees.
  • Capital that is invested must be actively engaged in the company’s business within 24 months.
  • Specific industries are not permitted to have EIS or SEIS investments.
  • An audit is required by an appointed tax officer before the company can enter into the EIS or SEIS program.
  • The company must not be listed on any stock exchange and not have any intention of becoming listed on a stock exchange at the time of investment.

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Sample Figures

Why You Should Look Into These Schemes

Looking at some examples of how these figures actually work in practice makes it easier to understand why it’s worthwhile to invest in EIS and SEIS schemes in the UK.

Income Tax Relief Sample

With EIS or SEIS, there is a 30 percent Income Tax Relief given upfront. For example: If an investor buys shares in a qualifying company in the amount of £100,000, the Income Tax Relief would equal £30,000. This makes the net cost of the EIS investment £70,000.

For qualifying investors, that income tax relief amount of £30,000 would be credited against the total income tax liability for the year when the shares are issued. One note here: The relief is available against a United Kingdom income tax liability, regardless of whether the investor is a resident of the UK. Additionally, the amount of tax relief cannot be more than the investor’s total income tax liability.

Another investment point to be aware of is the carry back provision; this allows an investor to use the tax relief benefit against taxes owed in the prior year, up to a maximum investment of £500,000, for a potential tax relief savings of £150,000.

Capital Gains Relief Sample

With EIS or SEIS, there is no capital gains tax due on shares purchased under the programs, provided they are held for three years.

For example: The realised value of your shares after three years is £250,000 less your original investment of £100,000. Your profit, which is not subject to capital gains, is £150,000. Investors must make a claim for income tax relief on the shares for the subsequent disposal of these same shares to qualify for exemption from capital gains taxes.

If you add these two examples together, that initial investment of £100,000 cleared the investor a tax-free £150,000 and a £30,000 tax relief upon purchase of the shares. So, in total, the investor would make a profit of £180,000 by using these tax relief schemes.

Benefits

For Those Raising Funding

Companies that are small and have challenges arranging capital can more easily put together the funding they need to start or expand their operations with EIS and SEIS programs. Furthermore, these programs can make it easier for people to invest in their companies by setting up a mobile app strategy that allows them to do so with just a few clicks of a button. EIS investments for a company brings fresh investors and fresh voices who might not otherwise know anything about the company they are investing in.

Other Benefits

For Investors

The tax benefits for EIS and SEIS investors are tremendous. With a 30 percent upfront tax relief and no capital gains tax, an investor can save significantly – even if the company never makes any money. In fact, there is also a cushion to relieve investors in EIS and SEIS programs if the company loses money instead. Better still, mobile app development now allows for designs that let investors track all of their investments, shares and tax relief benefits.

Using A Specialist

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If all of this information seems a little complicated, it’s because even though the programs are good ones, they are necessarily complex. One thing you need to know is that no amount of tax relief can turn a truly bad investment into an Apple or IBM. However, tax relief can lessen the bitter pill that you would otherwise swallow if your investment does turn out to be a bad one.

There are experts who can help you to make sure you comply with the complex EIS or SEIS regulations and avoid the withdrawal of your tax relief benefits. They will help you set up your EIS programs, advise you on investments, and show you the best Android app design or iOS app design to use for the best investment strategies. This, overall, is the easiest way to invest in the EIS and SEIS programs that will help your company succeed.

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