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
| EIS | SEIS | |
| Income Tax relief for investors | 30% | 50% |
| Available to directors or employees | No | No |
| Relief can be carried back 1 year | Yes | Yes |
| Roll over relief | Can be used to defer but not negate other capital gains | Can be used to defer but not negate other capital gains |
| Clawback | Reliefs clawed back if shares are disposed of within 3 years | Reliefs clawed back if shares are disposed of within 3 years |
| Relief on investment losses | Against income or capital gains | Against income or capital gains |
| Taxation of gains | Not taxable | Not 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 rules | 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. | 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 UK | Yes | Yes |
| Maximum number of employees | 250 (499 for knowledge intensive companies) | 25 |
| Ongoing trade | Must be set up on ongoing basis rather than to service specific projects or contracts | Must 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 companies | Must 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 companies | Cannot apply | Cannot apply |
| Parent companies | Must 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 investment | Cannot exceed £15m (relaxed rules for knowledge intensive companies) | Cannot exceed £200k |
| Maximum annual investment per investor | £1m | £100k |
| Maximum investment holding per investor | 30% | 30% |
| Maximum investment | £1m per investment, no more than £5 million in 12 year period | £150k |
| Type of investment | Only cash | Only cash |
| Risk to capital conditions | 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. | 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. |
