Whether you’re looking to invest in a small business or you’re a small business owner, you may have heard of the Enterprise Investment Scheme. But If you’re wondering ‘What is EIS’, read on!
The Enterprise Investment Scheme (or EIS) is an incentive set up by the UK government to encourage individuals to invest in small businesses.
Under EIS, a company can raise up to £5 million a year, and £12 million in the company’s lifetime (unless it’s a knowledge intensive company).
Who can use EIS?
Not all companies can use the EIS scheme, (sorry ASOS!) – there are a few requirements to receive investment:
Established in the United Kingdom 🇬🇧
Carries out a qualifying trade
Has less than £15 million in gross assets
Has less than 250 full-time employees
Isn’t trading on a recognised stock exchange
Doesn’t have more than 50% of shares owned by another company
Doesn’t expect to close in the foreseeable future, or after completing all projects
The company’s first commercial sale was under 7 years ago
HMRC offers a service that lets you know whether an investment will meet the conditions of the EIS. This is called advance assurance.
What are the benefits of EIS?
The EIS is beneficial for both small companies and investors. For small businesses, the EIS can:
Provide enough capital to support growth 💰
Provide more credibility
Bear in mind, the money must be spent within two years on qualifying business activities, this includes:
A qualifying trade
Preparation to carry out a trade
Research and development for a qualifying trade
This doesn’t include buying all or part of another business.
Investors can make great profit from investing in companies altogether, but the EIS in particular provides great benefits in the form of EIS tax reliefs:
A whopping 30% Income Tax Relief
Capital Gains Deferral Relief
100% Capital Gains Tax Exemptions when you exit your investment
100% Loss Relief when you exit your investment
100% Inheritance Tax Relief (if the investor passes after 2 years)
🚨 FYI: Shares must be sold 3 years or after and you must have claimed some Income Tax Relief to qualify for the Capital Gains Tax Exemptions. 🚨
How do I invest in EIS companies?
Investing in EIS companies can be a great opportunity for individual investors. If you want to get started investing in EIS companies, you can easily find the eligible companies using these sites:
Seedrs
Crowdcube
Wealth Club
SyndicateRoom
The maximum amount you can invest is £1,000,000.
What other investment schemes are available?
If you’re not 100% sold on the EIS, that’s ok! Back in 1994, the UK government set up multiple investment schemes to help support the growth of small businesses, and the EIS is just one of those schemes.
The others are:
The Venture Capital Trust (VCT)
The Seed Enterprise Investment Scheme (SEIS)
The Social Investment Tax Relief (SITR)
All four schemes are authorised and regulated by the financial conduct authority.