A Guide to EIS Tax Relief

For UK investors seeking tax-efficient ways to grow their wealth while supporting innovative businesses, the Enterprise Investment Scheme (EIS) offers an enticing opportunity.

EIS tax relief provides some incentives to people who wish to invest in early-stage companies. Additionally, EIS tax relief comes with an array of financial benefits. To find out more about EIS tax relief, continue reading.

What is EIS Tax Relief?

So, what is EIS tax relief? Understanding EIS tax relief can be confusing for some, but we’re here to break it down. Put simply, the Enterprise Investment Scheme (EIS) encourages people to make equity investments in higher-risk unquoted companies that are small to medium-sized by offering tax relief.

EIS tax relief is one of three tax-based venture capital schemes, first introduced in 1994. Other venture capital schemes also include the Social Investment Scheme and the Seed Enterprise Investment Scheme.

EIS helps higher-risk companies raise finances by offering a wide range of tax reliefs to different investors. Benefits include income tax relief, exemptions from inheritance tax (IHT), and capital gains tax (CGT) deferral relief, to name a few.

Investing in early-stage businesses helps the growth of the UK economy; the advantages involved are there to mitigate the risks associated with investing in early-stage ventures. It’s important to fully understand EIS tax relief, and it’s recommended that investing in such companies be done by more experienced investors.

There are many reasons why you should invest in an EIS-qualifying company. Most companies looking for EIS funding have goals to achieve significant growth.

This can be enticing for investors, offering them an opportunity to share the success of the company by buying shares from the beginning and witnessing the growth increase over time. Companies who qualify for EIS are typically young businesses, who really benefit from these types of investments.

The Eligibility Criteria

The company is required to complete an online Compliance Statement form SEIS1 or EIS1, to be submitted directly to HMRC. Additionally, companies will need to list every investor requesting an SEIS3, EIS3, or EIS5 certificate.

By completing this vital document, it confirms that the company has made efforts to meet all the conditions of the scheme. Once HMRC has successfully reviewed the compliance statement from the company and is satisfied that the conditions have been met, they’ll issue a form known as SEIS2 or EIS2.

These include a crucial and unique investment reference number for the share issue to the company. It’s important to note that investors must be UK taxpayers and hold shares for a minimum of 3 years without exceeding the annual investment limit of £1 million to be eligible for EIS tax relief.

Claiming Tax Relief

If you’re wondering when you can claim tax relief, you should know that you can only claim relief up to five years, after the 31st of January following the tax year you invested. When it comes to claiming tax relief, the company you’ve invested in will send you a compliance certificate that contains an investment reference number.

The reference number proves the company has met all conditions of the scheme and will continue doing so for at least three years. Within the certificate, there will also be information regarding how long you need to hold the shares.

If you haven’t received this certificate, you can’t claim tax relief, and HMRC won’t issue SEIS3, EIS3 or EIS5 certificates to you directly.

However, if you want to claim in the current tax year, you’ll need to request a change to your PAYE tax code while following guidance on the EIS tax coding process. To claim for the previous tax year, you’ll have to claim on your Self Assessment tax return.

Finding Reliable Chartered Accountants and Tax Advisers

If you’re looking for expert tax support or services provided by reliable chartered accountants, we can help. Here at Haggards Crowther, we have a team of professionals who work collaboratively to advise clients on their investments.

We provide guidance on maximising your annual Capital Gains Tax allowance and identifying any capital losses. Our helpful and friendly team will guide you through the world of investments, ensuring the income you’ve earned is correctly disclosed within your tax return.

We’re dedicated to providing our clients with the best tax and accountancy services. Our broad range of services allows clients to come to us with all types of issues or concerns.

If you’d like to find out more about our services regarding EIS tax relief, please don’t hesitate to get in touch. We are delighted to assist you in developing your business.

Hamid Mahmood ACMA CGMA

Hamid has a wealth of experience advising owner-managed businesses across a wide range of issues, including the sale of businesses, value generation for shareholders, and formulating and advising on tax-efficient strategies. He’s also a specialist at helping start-up companies reach their full potential through teamwork, strategic thinking, and leadership.

His expertise spans technology, cryptocurrency, property investment, and various service-based industries, offering clients tailored solutions to navigate their unique challenges effectively.