EIS and SEIS schemes

EIS and SEIS schemes

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APT Tax Accountants – Expert Advice on EIS Investments

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) present lucrative opportunities for small businesses to secure external investment and offer cost-effective investment options for investors.

At APT, we specialize in providing comprehensive guidance and support to both business owners and investors in relation to EIS investments. Our team of highly skilled chartered accountants possesses extensive experience in advising clients on various aspects of the scheme.

For investors, we offer assistance in maximizing available reliefs and ensuring prudent management of their investments. As for eligible companies seeking to harness the business advantages offered by EIS, we are fully equipped to support them throughout the entire process.

Registering for CIS returns

In order to ensure compliance with regulations, whether you are a contractor or subcontractor, we are here to assist you with all aspects of your Construction Industry Scheme (CIS) returns. Due to our extensive experience in assisting clients and businesses engaged in the construction industry in London, we have developed an in-depth understanding of the complexities involved in this field.

What is the Enterprise investment scheme?

The Enterprise Investment Scheme (EIS) provides an opportunity for eligible companies to secure capital for business expansion. By issuing new shares to investors, these companies can benefit from tax reliefs that incentivise investment and foster the growth of enterprises within the UK. This scheme plays a crucial role in encouraging entrepreneurship and supporting the development of businesses throughout the country.

How does an EIS work?

The EIS is designed to provide income tax and capital gains tax relief to investors, with the aim of promoting investment in smaller unquoted businesses. This scheme has gained significant popularity, especially among young technology companies that are often considered high-risk investments. By attracting investors through the promise of tax reliefs, the EIS allows these companies to gain a competitive edge and access crucial funding, while investors can take advantage of the favorable tax incentives provided by the scheme.

EIS for businesses

As a company owner, you have the opportunity to raise funds up to £5 million annually, with a maximum lifetime limit of £12 million for your company. It’s important to note that this limit includes any funding received from other venture capital schemes, and investments under a venture capital scheme must be obtained within 7 years from the company’s first commercial sale.

When issuing shares, they must be paid for in full and in cash at the time of issuance. These shares must be ordinary shares with full risk, meaning they don’t possess any special rights to company assets and cannot be redeemed. Once the shares have been issued, it is necessary to complete an EIS1 compliance statement and submit it to HMRC. This step ensures that investors can benefit from the tax advantages offered by the EIS scheme.

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EIS for investors

Investing in an EIS provides investors with appealing tax incentives. There are two main benefits in terms of tax relief: income tax relief and capital gains tax (CGT) relief.

Income tax relief under the EIS is currently set at a flat rate of 30%, which is quite attractive for investors. This means that investors can deduct 30% of their investment from their income tax liability.

Regarding capital gains tax, there are twofold benefits associated with investing in EIS. Firstly, if you hold your EIS shares for a minimum of three years and have claimed income tax relief on them, any gains made upon selling those shares will be exempt from capital gains tax. This provides a significant advantage to investors as they can enjoy tax-free gains on their investment. Secondly, by holding onto the EIS shares for a period longer than three years, you can potentially accumulate capital gains tax exemption over time, resulting in further tax savings.

These tax incentives make investing in EIS an attractive option for investors seeking to maximize their potential returns and minimize their tax liabilities.

How does EIS deferral relief work?

EIS deferral relief allows investors in qualifying EIS companies to defer payment of capital gains tax (CGT) on gains from their investments. This relief applies to gains made from the disposal of any type of asset. However, the investment in the EIS company must be made either three years after the gain arose or one year before it. The connection between the gain and the EIS company is irrelevant, as even unconnected investors are eligible for both CGT deferral relief and income tax relief.

How long do I need to hold EIS shares?

To benefit from the tax reliefs available, such as the 30% income tax relief, investors must hold their EIS shares for a minimum of three years from the date of issuance. This holding period is essential to qualify for various reliefs provided by the scheme.

How is EIS loss relief calculated?

EIS loss relief is another advantage for investors. If the EIS shares are disposed of at a loss, investors can elect to set off the loss against their income for the current or previous tax year, instead of offsetting it against capital gains.

The calculation of the loss relief amount is determined by multiplying the value of the loss by the investor’s marginal rate of income tax. Additionally, if preferred, the shares can be treated as if they were acquired in the previous tax year. In such cases, the relief is applied against the income tax liability of the previous year, subject to the overall annual limit for relief.

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