18 12 2017

UK Guides On Tapping EIS Tax Scheme Investment

The UK Government has recently issued guidance on the conditions that companies must satisfy in order to raise additional funds from investors using the Enterprise Investment Scheme (EIS), which provides tax relief to investors in higher-risk small companies.

Under the EIS regime, relief is provided at 30 percent of the cost of the shares purchased, to be set against the individual investor's income tax liability for the tax year in which the investment was made. Relief can be claimed up to a maximum of GBP1m (USD1.34m) invested in such shares, with a maximum tax reduction in any one year of GBP300,000 (providing the investor has sufficient income tax liability to cover it). After two years, EIS shares are exempt from inheritance tax (IHT).

Typically, a company can attract up to GBP12m in investment through the EIS. However, under certain conditions, some companies can attract up to GBP20m for research, development, and innovation.

Usual EIS rules should be followed if the company is not raising money for research and development, or if the company is raising money for research and development but either it hasn't already raised GBP12m over the lifetime of the company, or the company is within seven years of its first commercial sale.

The guidance sets out the various additional conditions that a company must satisfy to take advantage of additional funding up to GBP20m under the scheme, beyond the GBP12m limit. It covers how the scheme works; what the money can be used for; companies that can use the scheme; what happens when the company issues shares; what to do before raising money; and how to apply.