If you want to raise funds for your company, one excellent way of doing so is the Enterprise Investment Scheme or EIS. This series of UK tax reliefs was launched in 1994. It is designed to motivate investments for small unquoted companies.
Indeed, if you invest in companies that were not listed in the stock exchange will carry a significant amount of risks. The main goal of EIS is to compensate for these risks by offering capital and income gains tax relief for investors. With that said, EIS offers several benefits. These include tax relief from investment losses, tax-free growth, and capital gains tax deferral for the entire duration of the investment.
Qualifications Companies & Investors Must Meet To Qualify For EIS
For companies, their assets must not be greater than £15 million. Also, they must not have more than 250 full-time employees or belong to a list of excluded industries. Apart from that, the raised capital must be used by the company in just two years. Be reminded that listed companies or those who intend to get listed at the time of the investment aren’t allowed to join the scheme.
For investors, they must not have any form of preferential shares or controlling interest in the company. Moreover, no investor can have over 30% stake in the company. The scheme can’t be used to avoid tax. Lastly, associates, relatives, and partners of the investor can’t have any interest in the company.
Based on accountants, Hove business owners must consider EIS as a great way of raising funds when they can’t secure a loan from conventional channels like banks. The funds that will be raised from EIS can likewise be used for projects you’re planning to implement. Remember though that you will need to convince the HM Revenue and Customs that the money raised will be used for a real project. The excellent way of doing so is to show records which the groundwork has been laid and that the project is not only a simple idea.
Accountants with experience in such matters say that setting up a separate spreadsheet along with a bank account where the EIS will be used is very helpful in convincing HMRC. Moreover, they advise business owners to consider various share issues spread across a definite timeline. This will help prevent the HMRC from challenging how the funds will be used and make sure that funds are raised only when necessary.
For most business owners, the EIS can be very complex and daunting. If you get help from accountants who are well-versed in these matters, your business can certainly get the most out of the EIS.
About the author: Rachelle Mineo is a business owner who greatly benefitted from hiring the best accountant. With such professional, she was able to focus on more important tasks to ensure the success of her business. She recommends checking out www.atkinsonsca.co.uk for more information about this.