Tuesday 3 August 2021
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What Is An Enterprise Investment Scheme?

Enterprise Investment Scheme refers to an investment scheme in the UK that aims in raising capital for smaller and riskier companies. The EIS program aids the companies by providing their investors with federal tax relief. This not only acts as an incentive but also makes the companies’ share more attractive. It also grants 30% of the investor’s amount for the shares which help in reducing the income tax of the investor. £300,000 is the maximum sum that a taxpayer can claim. Apart from the tax credit, this investment even gets rid of the capital gains tax on the shares which the investors decide to sell. 

What can you do with the money raised?

The money raised from the  EIS shares can be used for certain business doings like, preparing to carry out a trade within 2 years of investment, doing a qualifying trade, developing and researching which can lead a qualifying trade. The amount accumulated must be spent within 2 years or by the date you begin trading. The sum should not be used to purchase all parts of another business and has a threat of loss to the capital. You can use the money for the growth and development of your business. 

What are the rules involved?

Investors must follow certain rules to qualify for the tax benefits and some of them are written below:

  • One can spend up to £1 million in every tax year
  • One must have shares for a minimum period of 3 years. You will fall under the subject to claw back relief if you gift the shares or put it up for sale within 3 years.
  • EIS tax relief cannot be carried forward.
  • An individual must be a taxpayer of the UK.
  • One should not have any connection with the EIS Company, which means you should not be an employee or partner or a paid director.
  • An individual must purchase new shares which are not present in the market. 

EIS shares must be paid in cash when they are issued. It must be full-risk shares which do not possess any right to your property and are not redeemable. It must have restricted privileged rights to dividends. If you are willing to invest in this scheme, see whether your company qualifies for the same or not. Get in touch with an EIS Company to know the entire procedure of application and eligibility criteria.

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