June 21, 2018 0

SEIS/EIS | Accounting Services

SEIS/EIS | Accounting Services

The SEIS and EIS schemes rolled out by the UK Government are intended to boost investments in startups by offering large doses of tax relief for investors. Ideally, startups that may not have otherwise attracted investments, due to a certain level of risk, stand to benefit from these investments, while for investors, that tax breaks give them more incentive to plough their money into investments.

Here is a look at these two options that are spearheading the push for investments in startups.

Name of Scheme EIS (Enterprise Investment Scheme) SEIS (Seed Enterprise Investment Scheme)
Eligibility Criteria (Assets) The total assets of the company should not exceed £ 15 million. The total assets of the company should not exceed £ 200,000.
Eligibility Criteria (Employees) The number of employees in the company should not be more than 250 at the time of investments. The number of employees in the company should not be more than 25 at the time of investments.
Eligibility Criteria (Listing) The company should not be a listed entity at the time of seeking investments. The company should not be a listed entity at the time of seeking investments.
Eligibility Criteria (FOR INVESTOR) Should not hold more than 30% of shares Should not hold more than 30% of shares
Investment Limits £ 1,000,000 per investor

£ 5,000,000 total per year

£ 12,000,000 total over company lifetime

£ 100,000 per investor

£ 150,000 total

Lock in period Three years
Tax relief Income Tax, Capital Gains Tax Exemption, Loss Relief, CGT Reinvestment Income Tax, Capital Gains Tax Exemption, CGT Reinvestment, Loss Relief, Inheritance Tax Relief

EIS and SEIS – investor friendly options to help raise capital

Both EIS and SEIS are great options to help startups raise capital easily. In the case of SEIS, investors can also be directors of the companies, and can enjoy tax relief upto 50% on investments upto the individual limit of £ 100,000 and also enjoy relief from Capital Gains Tax arising out of gains from the SEIS shares. In the case of EIS, investors can receive relief to the tune of 30% for investments upto the individual limit of £ 1,000,000, with similar CGT relief.

Tax relief explained

SEIS

  • Income tax relief- 50% on the cost of shares on maximum permissible investment of £100,000.
  • Capital gains tax relief – Profits earned from sale of shares held for a period of three years will attract nil capital gains tax.
  • Capital gains reinvestment – Profits realised before three years which are reinvested into other SEIS shares will attract nil CGT.
  • Loss relief – In the event of bankruptcy, investors can avail loss relief. 50 % of the amount invested will be considered (after deduction of IT relief of 50%) will be multiplied by highest tax rate applicable to investor to arrive at amount that can be claimed as loss relief.
  • Inheritance tax – Total relief from inheritance tax, subject to investor holding investments for a period of two years at the time of demise.

EIS

  • Income tax relief- 30% on the cost of shares on maximum permissible investment of £1000,000.
  • Capital gains tax relief – Profits earned from sale of shares held for a period of three years will attract nil capital gains tax.
  • Capital gains reinvestment – Profits realised before three years which are reinvested into other EIS shares will attract nil CGT.
  • Loss relief – In the event of bankruptcy, investors can avail loss relief. 70 % of the amount invested will be considered (after deduction of IT relief of 30%) will be multiplied by highest tax rate applicable to investor to arrive at amount that can be claimed as loss relief.

Both SEIS and EIS are great options for companies to use for raising capital, while offering investors the attractive option of availing multiple tax benefits with a single investment option. Take advice from an expert accountant to maximise your tax relief legally and present your company as a viable investment option.

 

Companies that need assistance for EIS/SEIS can click here

More on Gov.uk site here

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