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What is Enterprise Investment Scheme – EIS & SEIS ?

Enterprise Investment Scheme (EIS)

What Is the Enterprise Investment Scheme (EIS)?

The Enterprise Investment Scheme (EIS) is a provision that has been introduced by the UK government. It offers individuals the opportunity to support other relatively smaller UK businesses that are struggling to get adequate finance to run their business.

Establishing a startup is always tough, and if we add raising funds to the mix, it becomes a whole other ballgame. In this regard, EIS comes as a lifesaver as it helps young startups that are usually high-risk raise the necessary finances to grow their business while the investors can enjoy generous tax reliefs at the same time. Therefore, it is a win-win situation for both investors and new businesses.

The UK government first introduced the concept of the Enterprise Investment Scheme in the year 1994. This was a way to encourage individuals and companies to invest in new businesses as they are a vital part of the country’s economy. Statistics show that thanks to EIS, over 26,000 individual small-medium enterprises have been supported with combined funds of £15.9 billion.

The incentive that investors get out of this scheme is fantastic tax reliefs on investments up to £1m. Therefore, this scheme has been immensely successful, not just for new businesses but also for private investors. This success also led to the introduction of the Seed Enterprise Investment Scheme or SEIS. This scheme promotes the investments of private investors at an even earlier and riskier stage of their business. Therefore, investors enjoy added tax reliefs as a result of their support to these up and coming businesses.

What Is the Seed Enterprise Investment Scheme (SEIS)?

As mentioned above, the Seed Enterprise Investment Scheme (SEIS) offers excellent tax-efficient advantages to investors in exchange for their generosity and support in helping early stage and small startup businesses grow in the UK. The main purpose of SEIS was to boost the overall economic growth in the UK by promoting the business activities of new entrepreneurs.

This scheme was introduced in the year 2011 at Chancellor George Osborne’s Autumn Statement. The glorious tax incentives being offered to investors were expected to make an impact on the funding of new businesses, and that is just what happened. The entire face of businesses and startups have been revamped in the present times, thanks to more and more private investors embracing the possibilities of the EIS and SEIS. In addition to that, the SEIS has also become a super revered government-backed scheme that has ever been introduced in the United Kingdom.

Tax Relief Under EIS

The Enterprise Investment Scheme offers investors the following tax benefits on investments of £1m per every tax year:

  • The cap can increase to £2m per every tax year, so long as an investor invests at least £1m of the total money in knowledge-intensive businesses.
  • Investors can enjoy a tax relief of 30% income tax on their total investment. They can avail this relief under the EIS either in the same year in which they made the investment or can even carry it forward to the next year.
  • Investors can also get inheritance tax exemptions of all their shares that they hold for at least 2 years.
  • They can also enjoy capital gains exemptions on all their profits that they have earned on their shares held for at least 3 years.
  • Capital Gains Tax or CGT deferral can also be availed if you dispose of an asset which is later reinvested in a company that is eligible under EIS.
  • Finally, the most important incentive that investors gain is loss relief. If the company that you have invested in fails for any reason, you can claim a portion of the money you invested as Income Tax relief.

Therefore, as can be seen, the EIS and SEIS have contributed significantly to the economic scene in the UK by helping small businesses with a drive to raise funds and grow their companies into established firms over a period of time.

Services Offered by DNS Accountants

DNS Accountants is a premium Accountancy Company based in London. We have been operating for a number of years now and have years of experience under our belt. Irrespective of whether you are a company that is looking forward to funding from an investor or if you are an investor considering investing your money in an SME, we can help guide you with our team of experienced and expert financial advisers.

About the Author:

Sumit Agarwal
, A specialist accountant and tax adviser for freelancers, contractors and small businesses since 2005, He is an expert in business growth and development strategies. A renowned tax expert for owner managed businesses and contractors, He won the British Business Forum’s Young Entrepreneur Award in September 2012, presented at the House of Commons by MP Vrinder Sharma.