Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
The differences and the benefits
Are you looking for a way to raise money so you can grow your company? The UK government has rolled out two schemes – the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) in an effort to promote investment in small and medium businesses.
These two programmes offer tax relief to investors who provide capital to businesses that wish to obtain funds for growth and development. These schemes can be fantastic for investors and companies alike – so who is eligible and how exactly do they work?
How to qualify
In order for businesses to take advantage of EIS or SEIS, they cannot be trading on a recognised stock market and must be able to offer shares of their business to investors. Each programme also has theirown eligibility criteria:
- EIS is designed for companies that have been operating for less than seven years, with fewer than 250 employees, and their gross assets must not exceed £15 million.
- SEIS caters to companies that have been operating for less than two years, with fewer than 25 employees, and their gross assets must not exceed £200,000.
While the idea behind the two schemes is the same, the tax advantages for each differ slightly.
Investor benefits
Investors participating in the SEIS scheme are eligible for tax relief of up to £100,000 a year. This tax relief can come in the form of a 50% Income Tax relief on the entirety of the investment, or a 50% write-off on Capital Gains Tax (CGT) on the investment in the same tax year.
The bigger investment risk involved in being part of the EIS scheme also holds equitable tax benefits – up to 100% of your investment can be deferred against any CGT for up to one year before or three years following a sale.
In both schemes you are able to counterbalance any loss you experience from the sale of your shares against Income Tax or CGT and relief can be retroactively applied to the previous year of investment. You can also receive an exemption on CGT on profit made from selling your shares in the company (after three years of investment).
Additionally, if you keep your shares for more than two years, they are exempt from Inheritance Tax.
Apart from the extensive tax advantages, getting in on the ground floor of a successful company holds the promise of a big payday down the line.
How businesses benefit
The advantages for investors are clear, but the big winners are really the small and medium businesses that receive funding. With SEIS, a business is allowed to receive up to £150,000 of funding which includes any and all state aid they receive within three years of the investment.
With EIS, a business is allowed to receive up to £1 million annually. A business can participate and receive funds under both schemes but shares must be issued separately, on different days, and the responsibility for record keeping falls on the company.
If you’re interested in learning more about either scheme, get in touch with one of our advisors. We can help you navigate the process so you can be be rewarded with additional capital for your business.