The Enterprise Investment Scheme (EIS) provides some very attractive tax incentives for investors who subscribe for shares in small companies. If you are thinking of attracting investors using the EIS you should first get an advance assurance from HMRC that your company will qualify.
However, HMRC has recently changed the conditions under which it will give that advanced assurance. It will no longer grant assurance for an EIS application if the company is:
- over 7 years from its first sale and has not received funding under the EIS, or other tax advantaged venture capital scheme; or
- has received more than £10 million in funding under those schemes.
There is an exception to the 7-year rule for companies that are seeking to raise over 50% of their average annual turnover under the EIS in one go, and this is the company’s first attempt at using one of those tax advantaged venture capital schemes.
There are also new conditions for the investor. He or she must hold no shares in the company at the time they make their first EIS investment, ignoring any subscriber shares issued when the company was founded, and shares already issued under SEIS or VCT.