Enterprise Investment Scheme (EIS) is designed to provide investors with tax relief on their investments. Offering EIS can be a great incentive to attract new investors to your company.
EIS offers five different types of tax relief associated with capital gains tax, income tax, inheritance tax, capital gains tax deferral relief, and loss relief.
In order to qualify the shares allocated to the investor should be paid in full in cash upon the issue and it must be an ordinary “full risk” share with no unusual security, such as privileged rights to dividend or rights to the company’s assets in the event of a loss.
The investor cannot qualify for any tax relief if they receive special security from the company upon acquisition of the share; such as in the form of a protection arrangement for the investor intended to minimise their risk during or after the qualifying period. Investors should bear in mind that reliefs are only available for the issue of new shares.
In addition, the following stipulations must apply:
Investors who successively become company directors may fall under the “business angle exemption” if:
In order to qualify for EIS, the company must fulfil the following criteria:
Excluded activities include:
In order for the investors to benefit from the EIS tax reliefs, the company must meet the above qualifications on a regular basis during the three-year qualifying period.