Fund growth by attracting investment in your business.
Attracting investment in your business is an important step in funding growth through new projects or revenue streams. Tax reliefs are available to make an investment in your business more attractive to potential investors.
Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS)
SEIS is available to smaller companies (gross assets < £200,000, fewer than 25 employees) with a trade that is less than 2 years old. EIS is available to larger companies (gross assets < £15 million, fewer than 250 employees).
Income Tax Relief
Individuals can claim SEIS Income Tax relief at 50% of the amount invested in SEIS shares during the tax year in which the investment is made, on up to £100,000 of investment (i.e. a maximum of £50,000 of income tax relief per year). EIS relief is given in a similar fashion but at 30% of the amount invested in EIS shares for up to £1 million investment per year.
The relief can be carried back to the tax year preceding the year of investment, subject to the annual limit. The relief is given as a reduction of the investor’s income tax liability, meaning that if the relief available exceeds the investor’s income tax liability for the year in question, the relief is wasted. This is not generally available to employees of the company, or people holding more than 30% of the voting shares in the company
The shares must be held for three years from the date the shares were issued or Income Tax relief will be withdrawn. The business and investor must continue to meet certain requirements throughout this period. If so, any capital gain on the SEIS/EIS shares is also free from capital gains tax (CGT).
Capital Gains Tax Reinvestment Relief
If an individual disposes of an asset that would give rise to a chargeable gain and reinvests all or part of the amount of the gain in shares which qualify for SEIS/EIS relief, the gain reinvested may be exempted from Capital Gains Tax, or postponed until the SEIS/EIS shares are sold.
Venture Capital Trust (VCT) Relief
This is similar to SEIS and EIS relief, with similar qualification criteria. Rather than investing directly in individual companies, the taxpayer invests in a VCT scheme that invests in a wide range of companies. Individuals can claim VCT Income Tax relief at 30% of the amount invested in the tax year in which the investment is made, up to £200,000 of investment (i.e. a maximum of £60,000 of income tax relief per year), but this cannot be used against any other tax year. The shares must be held for 5 years to qualify.
Qualifying shares held under the VCT scheme are free from CGT, but there is no CGT reinvestment relief. Dividends received from VCT shares are exempt from income tax, which is not the case for SEIS/EIS shares.
There are many further requirements for a company, its shares and the investor to meet in order for the reliefs set out above to be available to investors. A company intending to obtain investment under these schemes can obtain advance assurance from HMRC that the proposed investment will qualify for relief. Such assurance can help to attract investors.
At Tax Innovations, we have extensive experience of the process and tax aspects of the tax reliefs available to attract investment to your business, and the process for obtaining advance assurance in respect of these reliefs. We can guide you through these processes to create the ideal, tax-efficient investment structure for your business.
If you would like more information regarding attracting investment to your business, or any other business funding matters please contact Tax Innovations on 01962 856 990 or firstname.lastname@example.org.
For personalised advice on how to attract business investment, please call us on 01962 856 990 or visit our contact page.