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Changes made to the Enterprise Investment Scheme ("EIS") from 6 April 2012 have proved to be a substantial boost for companies seeking finance and also for investors seeking to invest.
These changes, combined with difficulty in raising finance from more traditional sources, has seen EIS take off on a large scale. Now that a couple of years have elapsed since the changes, it is pertinent to take stock and see the dramatic effect that the changes have had on the number of companies seeking EIS investment and the amount of EIS investment raised.
The latest EIS statistics provided by HM Revenue & Customs relate to 2011-12 and the figures from April 2012 have not yet been published. Between 2010-2011 and 2011-12, there was an 87% increase in the amount of investment raised by companies under EIS. It is expected that once the 2012-13 statistics are out, they will show an even more dramatic increase from the 2011-12 figures.
One of the by-products of the increased popularity of the EIS is the number of EIS investment funds which have arisen under which a fund manager will identify the potential investee companies and seek finance for these companies from high net worth (HNW) individuals looking to make EIS investments.
A number of changes were made to the EIS from 6 April 2012 including changes designed to help alleviate problems trading companies were having in raising finance. These changes introduced by the Finance Act 2012 significantly increased the effectiveness of the EIS in achieving this aim, thereby enabling investors to invest in more established (and potentially less risky) companies as a number of these changes enabled larger companies and groups to attract EIS investment.
Furthermore additional changes increased the amount of income tax relief that investors could obtain. So in essence the amount which could be invested increased (thereby increasing the amount of relief which could be claimed) and the pool of investee companies also significantly increased. Many companies which did not qualify now do.
Also the Seed Enterprise Investment Scheme ("SEIS") was introduced from 6 April 2012 which provides extremely generous tax reliefs for investors investing in start-up companies.
The EIS changes introduced from 6 April 2012 included:
There are a number of conditions which need to be met in relation to the investee company and the three listed above are simply the ones which increased the size of companies which can now fall within the ambit of the EIS.
The favourable tax reliefs for EIS investors include:
Again, there are a number of conditions which need to be met to ensure the tax reliefs are available and before any EIS investment is made an investor should take advice.
The increase in the size of companies which can qualify means that well established companies can now benefit from EIS investment.
This article was written by James Meakin.
For more information please contact James on +44 (0)20 7427 1027 or firstname.lastname@example.org