Changes to EIS from April 2012

Criticism had been made in the past that EIS qualifying barriers were set too low.

Previously a company could only qualify for EIS investment if it employed less than 50 full-time staff, and had gross assets of less than £7m before investment. In addition, the annual amount that could be raised under EIS was limited to £2m.

As a result, only a limited number of companies qualified. EIS was restricted to smaller, supposedly high-risk, businesses. Many risk-averse investors were unwilling to consider such an investment, even in an established, well-managed company. 

Since the 2012 amendments these barriers are no longer there. The changes substantially increase the size of business, and investment, that qualify for EIS.

Companies seeking EIS investment from 2012 onwards should now re-evaluate their position, because many firms that previously did not qualify may do so in future. 

Private investor funding (individuals or venture capital trusts) will therefore become a realistic alternative to previous sources of finance for many more businesses.

Specific changes are: 

  • The annual amount an individual can invest increased from £500,000 to £1m.

  • Limit on number of employees increased from less than 50 to <250 full time.

  • Maximum amount invested in a 12-month period increased from £2m to £10m.

  • Under previous (2011/12) tax-year rules, company pre-investment assets could amount to no more than £7m; this increased to £15m from April 2012 onwards.

  • The post-investment asset criteria were dropped, so the annual investment amount limit is no longer curtailed by this test.

Changes announced in Chancellor's Autumn 2011 Budget Statement are: 

  • From April 2012, the SEIS scheme may give investors in start-up businesses 50% Income Tax relief on investments of up to £100,000.

  • Growth, even in a harsh environmentThe Seed Enterprise Investment Scheme (SEIS) will provide income tax relief at 50% for individuals who invest in new shares of qualifying companies. There will be an annual investment limit for individuals of £100,000 and a cumulative limit for companies of £150,000 funds invested under the Seed Enterprise Investment Scheme. 

  • Chancellor Osborne said “We’ve supported enterprise by increasing the generosity on the Enterprise Investment Scheme. We are extending this scheme specifically to help new start-up businesses get the seed investment they need. Even at the best of times they can struggle to get the finance they need – and in the current credit conditions that struggle too often ends in failure.

    The finer details of SEIS need fleshing out. How a business qualifies for investment and whether directors or shareholders can invest in their own venture, while claiming relief, are unclear. The Chancellor hinted SEIS investors will be offered Capital Gains Tax roll-over on assets sold with the proceeds reinvested in the 2012-13 tax year.

    Proposed EIS reforms include EIS simplification by relaxing both the ‘connected person’ rules and the definition of shares that qualify for relief. It will also tighten the ‘focus of the schemes’ by introducing a new test to exclude companies set up for the purpose of accessing relief, exclude acquisition of shares in another company and exclude investment in Feed-in-Tariffs businesses.

    Tax evaders caught in clamdown

    The Treasury statement reads;- "Government has some concerns about investment in companies which exist for a relatively short period of time during which they employ no staff, sub-contract all activities to other - often much larger -  entities, and then cease activities. These companies appear to have been created solely for the purpose of allowing relief to be accessed." 

    Start Up Britain, a brand new initiative, will waive any tax on capital gains for 1 year and extend a holiday on business rates for small firms until April 2013. 

  • In addition there is relief from Capital Gains Tax, as well as provision for losses.

No amount of tax 'sweetener' can turn a bad investment into a good one...only lessen the bitterness when it turns sour. Avoid having your tax relief withdrawn. Choose a company that understands and complies with complex E.I.S. regulations. Whilst there can be no pre-arranged agreement for realising mature EIS shares, it will be some consolation to know that Accolade has a viable investor exit strategy.

Accolade Office - Enterprise Investment Scheme opens to investors - 2016

Phone 0141 774 4600 to check availability of this 30% tax saving EIS

An Enterprise Investment Scheme is by far the best way of exploiting tax breaks

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EIS relief takes the edge off your tax bill

Inaccessible Pinnacle 
Sgurr Dearg 
Isle of Skye 

Photo taken by Bill Gray, 
Managing Director @ Accolade, 
Sunday May 1st 2011

"He either fears his fate too much,
Or his deserts are small,
That puts it not unto the touch, 
To win or lose it all."

Extract from 'My Dear and Only Love' written in 1643 by James Graham, Marquis of Montrose.

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