The Enterprise Investment Scheme Explained

What is an Enterprise Investment Scheme (EIS)? The federal government setup the Enterprise Investment Scheme, or EIS, to encourage wealthy businesspeople to plow money into small companies which can otherwise seem too risky. This is great information for start-up business owners, who can use the structure to encourage existing investors with taxes breaks.

The scheme may also be used to draw in new traders – greatly upping your likelihood of getting the amount of money you need. Because the EIS premiered in 1993, more than 27,000 companies have received investment, while over £18bn in funds have been raised. The majority (56%) has been put into companies increasing EIS funding for the very first time.

How does the EIS structure work? The system offers traders a number of benefits and bonuses in substitution for buying small, high-risk companies. For instance, investors are offered income tax relief proportional to the cost of the shares they purchase through the system. If a loss is made by them when they sell their EIS shares, they can claim loss comfort – further slicing their goverment tax bill. Investment made through EIS is intended for companies at the first levels of development, with low levels of staff and assets relatively.

This means the scheme plays an essential role in assisting Britain’s start-ups. The scheme rules dictate that your traders can state and keep EIS taxes reliefs associated with their shares. In the event that you don’t follow the guidelines for at least 3 years following the investment is manufactured, the federal government can withhold or withdraw tax reliefs from your traders.

What amount of fund can EIS increase? Under the terms of the structure, you can boost up to £5m every year from individual investors and no more than up to £12m on the duration of your business. This consists of any finance received from other capital raising schemes. It’s important to note that the money invested via EIS varies markedly from industry to industry.

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In 2016-17, businesses in the information and communication received money totaling more than £650m – around 37% of most investment. In 2016-17, 43% of EIS recipients got investments of £150,000 or less – a similar proportion to previous years. Over the same period, another 43% scooped investments of £2m or even more, while 24% received more than £4m.

What can I use EIS investment for? The government has set fairly strict guidelines on what EIS investment can and can’t be utilized for. Is my business eligible for EIS? Almost all trades qualify for EIS investment, so it’s highly possible that your company will be eligible. Just a few investments are excluded – these include shipbuilding, coal and steel, farming, property development, and accountancy.

Certain sectors appear to get a disproportionate amount of EIS funding. In 2016-17 (the latest or for which data are available), the information and communication, professional, technical and scientific, manufacturing, and wholesale and retail investments made up 68% of all EIS investment (£1.2bn). How can I increase an EIS investment? If you want to reward you existing investors by securing EIS benefits for them, you need to apply straight to the Small Companies Enterprise Center (SCEC), which runs the scheme.

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