In the year 2017-18, companies raised a cumulative total of £1.9 billion of funds under the Enterprise Investment Scheme (EIS). This was a £28 million increase on the previous year. There was, however, a drop in the use of Seed EIS, with the number of companies that qualified for funding dropping slightly.
A total of £2.118 billion in tax reliefs was paid, which was a £30 million increase from the period before. EIS investment qualified for 30% relief on income tax for the investor, based on both the amount subscribed for and the deferred capital gains treatment. The majority of the applications came from companies registered in London and the south-east, with a third of all EIS and Seed EIS investment coming from the IT and communications industries.
The complexity of the applications process has been criticised, particularly for small start-ups, and there has been a significant decrease in advance assurance requests in comparison to the previous year. This should not be an obstacle for companies reaping the benefits of these schemes, and with the help of a modern, skilled accountancy firm it doesn’t have to be.
HMRC made changes to the rules from January 2018 to reduce the number of speculative applications. They want to ensure companies who apply have already approached potential investors to determine the likelihood of actually attracting investment. For this reason, we suggest you do the same in your company, and we can support you in presenting your case to HMRC. EIS is an exciting and effective way to attract investors and raise finance – not surprising when you consider the 30% tax relief.
The tax breaks for investors in the Seed EIS are not equal to the EIS tax reliefs, but they do a similar job of making it an appealing prospect for investors interested in supporting new and start-up businesses. Tax relief on pension scheme contributions for high earners have been capped, and these people are the ideal candidates to invest in your company through the EIS or SEIS programmes.