An EIS is one of 4 schemes designed to help small or medium sized companies (SMEs) and social enterprises grow by attracting investment. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Under EIS, you can raise up to £5 million each year, and a maximum of £12 million in your company’s lifetime. This also includes amounts received from other venture capital schemes.
Your company must receive investment under a venture capital scheme within 7 years of the first commercial sale, and you must follow the scheme rules so that your investors can claim and keep EIS tax reliefs relating to their shares. Tax reliefs will be withheld or withdrawn from your investors if you don’t follow the rules for at least 3 years after the investment is made.
There are different rules for knowledge-intensive companies that carry out a significant amount of research, development and innovation, and either:
– want to raise more than £12 million in the company’s lifetime
– didn’t receive investment under a venture capital scheme within 7 years of the first commercial sale
In the Chancellor’s Spring Statement delivered to the House of Commons earlier this week, Philip Hammond revealed plans to “unlock” £20 billion in investments over 10 years.
He explained that the plan is to gain consultation on a “new approved fund structure” within the EIS, which may also include incentives for investors to fund these kinds of companies.
To fit the criteria, a business must have spent at least 15 per cent of operating costs on research and development (R&D) in one of the three years prior to investment, or 10 per cent in each of the preceding three years.
The government will also be further exploring “the reasons why some knowledge-intensive firms are unable to obtain the sustained funding they require, and the best ways of encouraging adequate early-stage investment” into them.
The UK offers some tempting tax incentives to support innovation and startup businesses, including EIS, Entrepreneur’s Relief, R&D Tax Relief*, and more.
At Beavis Morgan, we specialise in working with SMEs and entrepreneurial people across a wide range of sectors, providing guidance and strategic advice to help in formulating plans for your business in order to strengthen its prospects of success, achieve growth and maximise wealth.
If you would like to find out more about how we can assist you and your SME, or to discuss how any of these tax incentives could benefit your business, contact Steve Govey or your usual Beavis Morgan Partner.
* R&D Tax Credits – Why thousands of businesses are missing out