How to qualify for EIS
How to qualify for EIS
What is EIS?
The Enterprise Investment Scheme (EIS) is a government-backed scheme of tax incentives to encourage investment in small and entrepreneurial trading companies.
What does it offer?
EIS allows investors to set a percentage of the cost of shares they subscribe to (in EIS companies) against their current or preceding year's income tax liability.
An individual can currently claim income tax relief on 20% of the amount invested up to the first £500,000 of qualifying investments in one tax year.
What's new?
From April 6th 2012, individuals will be able to claim up to 30% income tax relief and the annual investment limit will be increased to £1 million.
The scheme constitutes state aid so the government proposals had to be approved by the European Commission. They were passed at the end of September and are expected to be legislated for in the Finance Bill 2012.
What are the qualifying conditions for companies?
To be eligbible, the company raising the funds must issue new ordinary shares and must then use the money raised in its trade within two years.
For the three years prior to the share issue the company must also:
- be based in the UK
- be independent unquoted (which includes AIM-listed companies)
- be a 'qualifying trade' i.e. not financial service or asset-backed businesses such as property developers.
Currently the company must have no more than £7 million before the issue and £8 million immediately after the issue. The government also plans to increase the threshold size for qualifying companies, however.
The proposed limits from April 6th 2012 are:
- fewer than 250 employees
- investment of up to £10 million per tax year
- gross assets of up to £15 million before investment.
There are a number of additional restrictions that can preclude companies and investors from meeting the fine print of the EIS scheme so please talk to us to make sure you qualify.