How Can EIS Shares Help Me?
Do you know that the UK government has an investment program for small companies that makes it easier to raise cash and liquid assets for business growth? The Enterprise Investment Scheme helps smaller companies that are having difficulty in arranging funds by giving the investors federal tax relief, which acts as a magnet to investors, making the potential purchase of company shares more mileage.
EIS is designed in such a way that it helps the smaller companies in arranging funds for the growth of the business. This is achieved by providing relief in tax for whoever purchases EIS shares of your enterprise. You can arrange funds up to £5 million annually, and around £12 million in the entire lifeline of the enterprise. It includes amounts generated with other equity capital schemes. Although the condition for EIS is that within seven years the first commercial-scale investment is to be received under a venture capital scheme.
Qualification For The Tax Relief
Specific Regulations must be followed by the company and its investors for EIS Tax relief. No doubt the regulations and formalities for applying and purchasing EIS shares are extensive but that is only to prevent frauds from abusing the law and diverting the main goal of the scheme which is to promote small enterprises. One of the regulations is that the investor needs to pay for the EIS share, at the same time he or she receives them. Without payments or delayed payments, shares are not eligible for the EIS tax relief.
The investors must hold the shares for a minimum of three years and purchased shares should be ordinary shares which imply that it does not favourably safeguard him or her from the probability of investing in the company.
The Enterprise Investment Scheme does not allow arrangements made merely to access tax relief. For example, the EIS would prevent an investor from funding another investor’s company on the stale that the other investor funds the previous investor's enterprise in return, that is you cannot find an enterprise and in return look for funding in return. The EIS also rejects the individuals with controlling financial interest in a company from receiving tax relief. Partners, directors, or employees of a company are also not eligible for the EIS shares.
The EIS allows an exception that applies to angel investors, investors of small startups, or the entrepreneur’s family and close ones. Angel investors are considered the opposite of venture capitalists as they usually invest in the entrepreneurs that are their loved ones instead of the business.
To claim the tax benefits of EIS, taxpayers must receive Form EIS3 from the company. If the company loses its qualifying status, the investor also loses their claim to tax relief despite having no control over the company’s decisions. So yeah nowadays it is quite beneficial to invest in small enterprises as more focus is on their growth, and it has been seen in the past also that the success rate of this enterprise is quite high.
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