Enterprise and Seed Enterprise Investment Schemes

Enterprise and Seed Enterprise Investment Schemes

Category : Tax

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) were set up to encourage investment in riskier smaller businesses. The tax advantages on offer can be quite significant. In this article we explore the rules to qualify for the schemes and the benefits they can bring.

EISSEIS
Income Tax relief for investors30%50%
Available to directors or employeesNoNo
Relief can be carried back 1 yearYesYes
Roll over reliefCan be used to defer but not negate other capital gainsCan be used to defer but not negate other capital gains
ClawbackReliefs clawed back if shares are disposed of within 3 yearsReliefs clawed back if shares are disposed of within 3 years
Relief on investment lossesAgainst income or capital gains Against income or capital gains
Taxation of gainsNot taxableNot taxable
What the money must be used for?Preparations, R&D or operation of any trade other than 20% on excluded activities.The company must use the money for growth and development of revenue, customer base or number of employees.Preparations, R&D or operation of any trade other than excluded activities. The company must use the money for growth and development of revenue, customer base or number of employees.
Public exchange rulesAt the time of the share issue, the company’s shares may not be listed on a recognised stock exchange. Smaller exchanges such as AIM are not recognised.At the time of the share issue, the company’s shares may not be listed on a recognised stock exchange. Smaller exchanges such as AIM are not recognised.
Must be physically established in the UKYesYes
Maximum number of employees250 (499 for knowledge intensive companies)25
Ongoing tradeMust be set up on ongoing basis rather than to service specific projects or contractsMust be set up on ongoing basis rather than to service specific projects or contracts
 Time limit Must be within 7 years of first commercial sale (except for new product, new market, inevstment exceeded 50% of average turnover or knowledge intensive companiesMust be within 2 years of the state of a trade carried on by the company or another person who sold it to the company .
Subsidiary companiesCannot applyCannot apply
Parent companiesMust own more than 90% of subsidiary if subsidiary is carrying out the trade
Must own more than 90% of subsidiary if subsidiary is carrying out the trade
Gross assets before investmentCannot exceed £15m (relaxed rules for knowledge intensive companies)Cannot exceed £200k
Maximum annual investment per investor£1m£100k
Maximum investment holding per investor30%30%
Maximum investment£1m per investment, no more than £5 million in 12 year period£150k
Type of investmentOnly cashOnly cash
Risk to capital conditionsThe investment should carry a risk that the investor will lose more capital than they are likely to gain as a net return.
The investor cannot make arrangements to take priority over other investors in the event of default or in the timing of payments in return of the investment.
The investment should carry a risk that the investor will lose more capital than they are likely to gain as a net return.
The investor cannot make arrangements to take priority over other investors in the event of default or in the timing of payments in return of the investment.

About Author

Shaya Grosskopf

Business accountant. Specialise in cloud accounting, digital and cross-border VAT, online and tech companies, reporting systems, tax planning and general commercial advice.

Leave a Reply

Sign up to our newsletter