What is Enterprise Investment Scheme? - CruseBurke (2024)

Wondering about what is enterprise investment scheme? EIS has become increasingly popular in recent years as more individuals and businesses recognise the potential benefits of investing in innovative companies with high growth potential.

With the EIS, investors can qualify for tax relief of up to 30% of their investment, making the investment process more attractive to individuals and businesses looking for ways to diversify their portfolios and reduce their tax liability.

Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.

What Is Enterprise Investment Scheme (EIS)?

The Enterprise Investment Scheme (EIS) is a tax-advantage scheme available in the UK that offers individuals the opportunity to invest in early-stage and high-growth companies. Under the scheme, investors can make tax-deductible investments in qualifying companies and receive additional tax benefits such as tax relief, making it an attractive option for those looking to invest in early-stage companies.

The EIS allows investors to claim tax relief on up to 30% of their investment, providing a significant incentive to invest in early-stage companies that may otherwise be difficult to fund. Additionally, investors are also eligible for tax-free growth of their investments, meaning that any increase in the value of their investment is exempt from capital gains tax when the shares are eventually sold.

What are the Qualifications for the Enterprise Investment Scheme?

To qualify for the Enterprise Investment Scheme (EIS) in the UK, companies and individuals must meet certain criteria. For businesses, the most important factor is the stage of development that the company is at, with the scheme designed to support early-stage and high-growth companies. In general, companies must be less than seven years old and have raised no more than £15 million in total equity investments from all sources.

To qualify for the scheme, companies must also meet certain requirements related to their business activities, such as being involved in research and development or involved in a designated sector like renewable energy, engineering, or technology. In addition, these companies must also demonstrate that they have the potential for significant growth and the ability to create new jobs or improve the British economy in some other way.

Individuals who wish to invest in a company through the EIS scheme must also meet certain requirements. First of all, they must be UK residents or normally resident in the UK for tax purposes. They must also be an approved investor, either through a third-party manager such as a bank or broker or by becoming a member of an approved EIS venture capital trust (VCT). Individuals must also meet the minimum subscription requirement.

What Do You Need to Check Before You Apply?

Before applying for the Enterprise Investment System (EIS) in the UK, there are several important things that individuals and businesses need to check to ensure that they meet the requirements for applying.

First of all, companies must be less than seven years old and have raised no more than £15 million in total equity investments from all sources. In addition, companies must also demonstrate that they have the potential for significant growth and the ability to create new jobs. This means that the company must have a clear business plan and a solid management team with a track record of success.

What Happens Next?

After applying for the Enterprise Investment Scheme (EIS) in the UK, the next steps depend on whether the application is approved or not. If the application is approved, the individual or business will receive a tax relief on their investment.

If the application is approved, the individual will receive a certificate from HM Revenue and Customs (HMRC), which they will need to include in their tax return for the period in which they invested. The individual will then be able to claim tax relief on their investment up to a maximum percentage of their total investment.

For example, if an individual invests £5,000, and the maximum percentage they can claim is 30%, they will be able to claim tax relief on £1,500. They will need to reduce their taxable income by this amount, which will then reduce the amount of tax they need to pay.

However, if the application is not approved, the individual or business will not receive the tax relief and will not be able to claim tax relief on their investment. It is important to note that the decision to approve an EIS application is made by HMRC and they may refuse the application if the company does not meet their requirements.

When Will I be Able to Claim EIS Income Tax Relief?

In the UK, individuals and businesses can claim income tax relief on their investment in an Enterprise Investment Scheme (EIS) after the end of the tax year in which they invested. This means that the individual or business will not be able to claim the tax relief until they complete their tax return for that year.

After completing their tax return, the individual or business will be able to claim the tax relief by reducing their total taxable income by the amount of their EIS investment and then completing the necessary paperwork. The paperwork will then need to be sent to HMRC and the tax relief will be applied to their tax bill in the next tax year.

How Can I Buy EIS Investments?

To buy an Enterprise Investment Scheme (EIS) investment in the UK, individuals and businesses will need to find a suitable EIS company, such as a company seeking funding through an EIS company. There are several ways to find an EIS investment, including through EIS intermediaries, online marketplaces, and word-of-mouth recommendations.

Once the individual or business has found a suitable EIS investment, they will need to determine the amount of investment they want to make and the amount of tax relief they will receive. The tax relief is based on the amount of the investment and the level of income tax the individual or business pays.

The Bottom Line

In conclusion to what is an enterprise investment scheme, buying Enterprise Investment Schemes (EIS) in the UK is an effective way for individuals and businesses to invest in high-growth start-ups and innovative companies, while receiving tax relief.

Investing in EIS carries certain risks, such as the potential for the company to fail or the investment to become worthless. Individuals and businesses should do their due diligence and seek professional advice before investing in EIS. It is also important to note that applying for the EIS scheme is a time-consuming process and the entire process from application to receiving the tax relief can take several months. Overall, investing in EIS can be an effective way to invest in innovative high-growth companies and receive tax relief, but individuals and businesses must carefully consider the risks and ensure that they meet all the requirements of the scheme before investing.

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Disclaimer: The general information provided in this blog about how to manage receipts for tax in the UK includes text and graphics. It does not intend to disregard any of the professional advice in the future as well.