Enterprise Investment Scheme: Functions And Importance In A Business

Enterprise Investment Scheme (EIS Investment) is a type of investment program in the UK. It is giving opportunities for any smaller or riskier companies to raise capital. The program helps provide a riskier incentive to investors to make the potential purchase of the company’s shares more appealing.

The EIS works by granting a percentage of 30 of what the investor is paying for the shares as a credit. It reduces the individual income tax of the investors owed for the year, which the individual purchased the shares.

Facts about Enterprise Investment Scheme

Here are the key facts of EIS for every business to know:

  1. The EIS investment program is making it easier for smaller businesses to raise capital.
  2. The EIS is helping riskier companies give investors federal tax relief, making the purchasing of those businesses’ shares becoming more appealing.
  3. The EIS is granting 30% of what the investor is paying for the shares as a credit.

The taxpayers can claim 30% tax relief on investments. In addition, the EIS eliminates the capital that had gained tax on those shares when the said shares are decided to sell. The interested investors purchase shares of the qualifying companies from an EIS fund.

Enterprise Investment

How to qualify for EIS tax relief?

To qualify for the tax relief, both the investors and companies should follow several specific regulations. The Enterprise Investment Scheme regulations are meant for preventing companies and investors from misusing the law. Additionally, it destabilizes the goal of encouraging small business investment.

As a regulation, investors are required to pay for the shares on the day they receive them. Shares issues with delayed payment or without payment are ineligible for Enterprise Investment Scheme tax relief. Investors should hold the shares (at least three years) and shares purchased should be ordinary shares that don’t protect the investor from the prospect of investing in the company.

The EIS doesn’t allow any arrangements to provide tax relief.

For example, investor B has invested into the company of investor A. Thus, EIS restricts investor A from investing in the company of investor B. Why? Investor B had invested in the company of investor A in return. The Enterprise Investment Scheme is excluding individuals having a controlling financial interest from receiving tax relief, as well as the directors, partners, or company employees.

The EIS tax relief can be claimed when the taxpayers should receive Form EIS3 from the company. When the company loses the qualifying status, the same as the investor, it closes the claim to tax relief.