The Enterprise Investment Scheme (EIS) is designed for smaller, higher-risk trading companies to raise and build finances by offering tax relief to prospective investors. Such incentives are intended to counterweigh some of the risks.

Entry into the scheme is subject to a decision and audit made by an appointed tax officer, thus a strong business proposal is crucial. The list of requirements mirrors that of the SEIS but are more stringent:

  • The company must not be listed or have any intention of becoming listed at the time of investment.
  • The company must not have more than 250 full-time employees.
  • Cannot have gross assets exceeding £15 million.
  • You cannot raise more than £5 million in total in any 12-month period.
  • All capital raised must be actively engaged within 24 months.

However, despite the stringent requirements, money from the EIS can be used to carry out the task of research and development (R&D), if R&D leads to developing a qualifying trade.

In addition, the company must not be in certain trades. HMRC clarify the full requirements of the Enterprise Investment Scheme on the HMRC website and specifically identify the following trades that do not qualify for EIS:

“Most trades qualify, but some do not. Those that do not are termed ‘excluded activities’ and are:

  • dealing in land, in commodities or futures in shares, securities or other financial instruments
  • dealing in goods, other than in an ordinary trade of retail or wholesale distribution
  • financial activities such as banking, insurance, money-lending, debt-factoring, hire-purchase financing or any other financial activities
  • leasing or letting assets on hire, except in the case of certain ship-chartering activities
  • receiving royalties or licence fees (though if these arise from the exploitation of an intangible asset which the company itself has created, that is not an excluded activity)
  • providing legal or accountancy services
  • property development
  • farming or market gardening
  • holding, managing or occupying woodlands, any other forestry activities or timber production
  • shipbuilding
  • coal production
  • steel production
  • operating or managing hotels or comparable establishments or managing property used as an hotel or comparable establishment
  • operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home
  • generating or exporting electricity which will attract a Feed-in Tariff, unless generated by hydro power or anaerobic digestion, or unless carried on by a community interest company, a co-operative society, a community benefit society or a Northern Irish industrial and provident society
  • providing services to another person where that person’s trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the company providing the services

A company can carry on some excluded activities, but these must not be ‘substantial’ part of the company’s trade. HMRC take ‘substantial’ to mean more than 20% of the company’s activities. See VCM3000.”

For further enquiries or to discuss your specific circumstances, please get in touch with the team.

 

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