Enterprise Investment Scheme

The Enterprise Investment Scheme allows qualifying companies access to equity investment from new and, in some cases, existing shareholders. The shareholders obtain potentially attractive tax breaks. At Page Ivy, we can provide help if you are interested in financing your business in the Chesterfield area or you are interested in providing capital to businesses.

The purpose of the Enterprise Investment Scheme (EIS) is to help certain types of small higher-risk unquoted trading companies to raise capital. It does so by providing income tax and CGT reliefs for investors in qualifying shares in these companies.

There are really two separate schemes within the EIS:

  • a scheme giving income tax relief on the investment and a CGT exemption on gains made when the shares are disposed of; and/or
  • a scheme aimed at providing a CGT deferral.

An individual may be able to take advantage of either or both of these schemes as long as they meet the relevant conditions which are considered below.

EIS reliefs available

Income tax relief

  • Investors may be given income tax relief at 30% on their investments of up to £1,000,000 a year (£2 million a year for knowledge-intensive companies from 6 April 2018).
  • The income tax relief is withdrawn if the shares are disposed of within three years.

Eligibility for income tax relief is restricted to companies with which you are not ‘connected’. This is considered in ‘How to qualify for income tax relief’ below.

CGT exemption

  • Gains on the disposal of EIS shares are exempt unless the income tax relief is withdrawn.
  • The CGT exemption may be restricted if an investor does not get full income tax relief on the subscription for EIS shares.
  • Losses on the disposal of EIS shares are allowable. The amount of the capital loss is restricted by the amount of the EIS income tax relief still attributable to the shares disposed of.
  • A capital loss arising on the disposal of EIS shares can be set against income.

CGT deferral

  • Gains arising on disposals of any assets can be deferred against subscriptions for shares in any EIS company.
  • Shares do not have to have income tax relief attributable to them in order to qualify for deferral relief.
  • The gain will become chargeable in the tax year when the subscription shares are disposed of.
  • There is no upper limit on the amount of deferral relief available to an individual although there is a limit on investment in a single company or group of companies.

Qualifying Companies

Companies must meet certain conditions for any of the reliefs to be available for the investor.

  • The company must be unquoted when the shares are issued and there must be no arrangement in existence at that time for it to cease to be unquoted.
  • All the shares comprised in the issue must be issued to raise money for the purpose of a qualifying business activity.
  • The money raised by the share issue must be wholly employed within a specified period by the company.
  • The investment must generally be made within seven years of the company’s first commercial sale.
  • The company or group must generally have fewer than 250 full time employees.
  • The size of the company is limited to £15 million (gross assets).
  • The amount of capital raised in any 12 month period is limited to £5 million (£10 million a year for knowledge-intensive companies from 6 April 2018).
  • The company must not be regarded as an ‘enterprise in difficulty’ under EC guidance
  • The company need only have a permanent establishment in the UK rather than carrying on a qualifying trade wholly or mainly in the UK.

Qualifying business activities

A trade will not qualify if excluded activities amount to a substantial part of the trade. The main excluded activities are:

  • dealing in land, in commodities or futures or in shares, securities or other financial instruments
  • financial activities
  • dealing in goods other than in an ordinary trade of retail or wholesale distribution
  • leasing or letting assets on hire
  • receiving royalties or licence fees, other than, in certain cases, such payments arising from film production, or from research and development
  • providing legal or accountancy services
  • property development
  • farming or market gardening
  • holding, managing, or occupying woodlands
  • operating or managing hotels, guest houses or hostels
  • operating or managing nursing homes or residential care homes
  • ship building
  • coal and steel production.

Time period in which the money is invested

The time limit for the employment of money invested is to two years from the issue of the shares or, if later, two years from the commencement of the qualifying activity.

Changes to the rules for qualifying companies

Over the years, governments make amendments to what are regarded as qualifying companies for EIS. The thrust of the changes is to ensure well-targeted support for investment into small and growing companies, with a particular focus on innovative companies. For example the conditions for knowledge-intensive companies vary from some of those mentioned above.

How to qualify for income tax relief

Eligibility for income tax relief is restricted to companies with which you are not 'connected' at any time during a period beginning two years before the issue of the shares and ending three years after that date, or three years from the commencement of the trade if later.

You can be connected with a company in two broad ways:

  • by virtue of the size of your stake in the company; or
  • by virtue of a working relationship between you and the company.

In both cases the position of your ‘associates’ is also taken into account.

Size of stake

You will be connected with the company at any time when you control directly or indirectly possess, or are entitled to acquire, more than 30% of the ordinary share capital of the company.

Working relationship

You will be connected with the company if you have been an employee or a paid director of the company.

There is an exception to this rule if you become a paid director of the company after you were issued with the shares.

You must never previously have been connected with the company and must not become connected with it in any other way. Also, you must never have been involved in carrying on the whole or any part of the trade or business carried on by the company.

How to qualify for CGT deferral relief

You can defer a chargeable gain which accrues to you on the disposal by you of any asset. In addition, you can defer revived gains arising to you in respect of earlier EIS, Venture Capital Trust (VCT) or CGT reinvestment relief investments.

There are some restrictions on investments against which gains can be deferred. These are designed, broadly, to prevent relief being obtained in circumstances where there is a disposal and acquisition of shares in the same company.

Receiving value from a company

The EIS is subject to a number of rules which are designed to ensure that investors are not able to obtain the full benefit of EIS reliefs if they receive value from the company during a specified period. If relief has already been given, it may be withdrawn.

Examples of the circumstances in which you would be treated as receiving value from the company are where the company:

  • buys any of its shares or securities which belong to you
  • makes a payment to you for giving up the right to payment of a debt (other than an ordinary trade debt)
  • repays a debt owed to you that was incurred before you subscribed for the shares
  • provides you with certain benefits or facilities
  • waives any liability of yours or an associate's to the company
  • undertakes to discharge, any such liability to a third party
  • lends you money which has not been repaid before the shares are issued.

Receipts of 'insignificant' value will not cause the withdrawal of relief.

How we can help

It is not possible to cover all the detailed rules of the schemes in a factsheet of this kind. If you are interested in financing your business in the Chesterfield area or you are interested in providing capital to businesses please contact us at Page Ivy.

We can also help to guide you through the implementation of an Enterprise Investment Scheme which is suitable for your circumstances.

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After completing her A-Levels in 2017, Rebecca started her career in accounting by joining the Page Ivy team. Since then she has completed levels 2 and 3 of the AAT qualification and is currently studying towards level 4.

In the office, Rebecca works with our clients to assist them in preparing their VAT returns, assists with Xero Cloud-based bookkeeping and Accounting and is also trained in all matters of payroll.

In her spare time, Rebecca likes to, spend time with her friends and family, train dogs and more recently, has started to learn Spanish.

Since school Charlie has always had an interest in accountancy and followed up on his career aspirations by joining Page Ivy in 2017.

After three years of studying, Charlie is nearing completion of his AAT level 4 qualification and is looking to start his ACCA training imminently.

Charlie deals with the preparation of Limited Company, Sole trader and Partnership accounts along with preparing VAT and MGD returns.

In his spare time, Charlie enjoys watching football and spending time with his partner, friends, and family.

Danielle joined the Page Ivy team back in 2013 as an AAT Trainee, now qualified she is responsible for managing our Payroll  Bureau.

Her role includes processing weekly, bi-weekly, and monthly payroll runs, corresponding with HMRC on behalf of our clients,  preparing and submitting CIS 300 returns, assisting clients with all areas of payroll, HR, and Administration.

In her spare time, Danielle enjoys climbing, spending time with family and friends, and going on long country walks with her partner and dog.

Declan is the newest member of the Page Ivy team, starting with us in 2020.

Declan is currently studying towards level 2 of his AAT Apprenticeship and in the office, is getting to grips with data entry and analysis.

In his spare time, Declan enjoys country walking with his family and dog, sports events and more recently, learning to play the piano!

Megan joined our team in 2014 and has been ensuring that the Page Ivy office runs smoothly ever since.

Her role includes managing the team and their diaries,  handling client queries, and assisting with Administration.

Megan is a Xero certified Payroll advisor, meaning that when Danielle is on leave, Megan is on hand to run our payroll department.

Megan has two children, Isabella and Felicity, who like to keep her busy! In her spare time, she likes to keep fit, spend time with her family and online shop!

Abby started her career in accounting in 2009, working for a small practice in Chesterfield, alongside studying for her AAT qualification.

After three short years, in 2012 the opportunity arose to become Director of Page Ivy Accountants and she hasn't looked back!

Building long-lasting client relationships are of utmost importance to Abby, she has a passion for providing a high level of customer service and ensuring that our clients feel valued.

Abby is responsible for overseeing the preparation of VAT returns and MGD return prepared by the Page Ivy team; along with providing personal tax advice to a wide range of clients.

 

In her spare time, Abby enjoys, traveling, reading, and going to the gym.

Edward joined the team as a school leaver in 2012.  From here he went on to study Business Administration, AAT, and finally progressed on to complete his  ACCA qualification 2019.

Edward is a knowledgable, pro-active Senior accountant, who prides himself on providing high quality, in-depth, technical advice in a manner that is easily understood by his clients.

He is responsible for the preparation of Sole trader, Partnerships, and Limited Company accounts. As well as monthly and quarterly management accounts and conducting business reviews.

In his spare time, Edward likes to spend time with his friends and family,  spending time in his local pub and watching Derby FC collect 3 points.

 

Gareth started his career in accountancy in 2002. Since then he has worked in both small and medium-sized accountancy practices, working with a variety of clients from small businesses to advising quoted companies on Corporate Tax compliance and specialist claims, such as for Research and Development allowances. He places high importance on technical expertise, believing this to be essential to ensure clients can be safe in the knowledge they are fully compliant with HMRC’s requirements while minimising their tax liabilities. This is reflected in him being a fully qualified member of the Chartered Institute of Taxation, and a fellow of the Institute of Chartered Accounts in England and Wales.

He joined Page Ivy in 2012, since then he has taken responsibility for overseeing the preparation of clients Sole Trader, Partnership and Limited company accounts, as well as clients personal Self Assessment Tax Returns.

Alongside Abby he hopes to continue to develop both the technical expertise within the firm, and see the business continue to grow from strength to strength.

Outside of work Gareth has served as deputy leader of the town council, enjoys eating out, and fishing.

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