Using the Enterprise Investment Scheme
The Enterprise Investment Scheme (EIS) encourages investment in smaller, unquoted, trading companies. The scheme does this by offering tax relief to investors who help small companies to raise finance.
In order for investors to be able to claim EIS tax reliefs, the company which issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be employed for the purposes of the trade, and the trading activities carried on.
The main tax advantage for investors is Income Tax relief of 30%. The maximum annual amount that an individual can invest through the EIS is £1 million. Income Tax relief is limited to the amount that reduces the individual’s Income Tax liability for the year to nil.
EIS investments also qualify for other reliefs including, Capital Gains Tax deferral relief for the life of the investment and tax relief for any losses made on the shares bought. These generous tax allowances aim to compensate for the commercial risks involved.
Companies interested in raising money through the EIS scheme can apply for advanced assurance from HMRC. This can help the company to secure funding and provide confidence to investors that they are making a qualifying investment.