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Grow your business with the Enterprise Investment Scheme 2 About the EIS Associ

Grow your business with the Enterprise Investment Scheme 2 About the EIS Association The EIS Association (EISA) is the official trade body for the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) industry. EISA is a highly effective not-for-profit organisation that exists to aid the provision of capital to UK small and medium-sized enterprises (SMEs) through these two schemes. EISA works closely with HM Treasury, HM Revenue and Customs, government ministers, MPs and the FCA to enhance EISs and SEISs and promote the benefits of using them to investors, companies and their respective advisers. EISA collaborates with other trade bodies that support investment into SMEs, including the British Venture Capital Association (BVCA), the Association of Investment Companies (AIC), the Institute of Chartered Accountants in England and Wales (ICAEW) and the UK Business Angels Association (UKBAA). The EISA Director General sits on the BVCA Venture Capital Working Group, which aims to present a unified voice from all sections of the SME and venture finance industries to the UK government and the EU. EISA’s membership is drawn from all areas of the EIS/SEIS industry and includes EIS/SEIS fund managers, lawyers, accountants, tax advisers, corporate financiers, IFAs and wealth managers throughout the UK. Details of our members and membership categories can be found on our website, www.eisa.org.uk, under the ‘Membership’ section. Please contact Mary Rodgers at mary.rodgers@eisa.org.uk if you are interested in learning more about EISA and becoming a member. 30% initial income tax relief Actual net cash outlay of 70p in the £ CGT freedom No Capital Gains Tax to pay CGT deferral relief Potential unlimited and indefinite deferral of an existing CGT bill Loss relief Maximum exposure of 38.5p in the £ for a 45% income tax payer Inheritance tax relief Potential saving of 40p in the £ 50% initial income tax relief Actual net cash outlay of 50p in the £ CGT freedom No Capital Gains Tax to pay CGT deferral relief Potential exemption of 50% of an existing CGT bill Loss relief Maximum exposure of 27.5p in the £ for a 45% income tax payer Inheritance tax relief Potential saving of 40p in the £ EIS SEIS The benefits for individuals of investing through EIS and SEIS 3 About this guide Small and medium-sized firms make up more than 99% of all UK businesses and are responsible for almost two thirds of private sector employment. They are truly the beating heart of our economy and integral to its health. A healthy economy is one where businesses have access to capital so they can grow and fulfil their potential. For large companies this is not generally a problem, but for smaller companies it can be. If a bank rejects a small company for a business loan, all too often the business owner feels they have no options left. But they do. There are many financing options available to smaller companies outside of traditional bank lending – it is just that business owners are not always aware of them or may, incorrectly, think they are not right for their company. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are two such options, and this guide has been produced by the EIS Association (EISA) as a quick introduction to the schemes. It explains what they are, how they work and some of the rules associated with them. It is also designed to get business owners thinking about whether EIS or SEIS could be right for them and contains information about taking the next steps towards seeking funding. We hope you find it is useful. And remember, the EIS Association is here to help businesses obtain the funding they need, so if you would like any further information about EIS or SEIS please get in touch. Mark Brownridge Director General The Enterprise Investment Scheme Association (EISA) In this guide How can EIS and SEIS help my business? 4 How do EIS and SEIS make it easier for a company to obtain funding? 4 How could EIS and SEIS help my business to grow? 4 Will my business be able to benefit from EIS or SEIS funding? 6 Eligibility 6 Suitability 7 I want to seek funding. What do I do next? 9 This guide’s sponsors 10 4 Investment in a business through EIS and SEIS is provided by UK tax-paying individuals. In return, they receive shares in the company in which they are investing. They are incentivised to provide finance through tax relief they receive on their investments, which is 30% for EIS and 50% for SEIS. This means that an EIS investment of £100,000 costs the investor only £70,000 and a SEIS investment of £100,000 only £50,000. Investors must have actually paid an equivalent amount of income tax in the current or previous year to receive it back in full via EIS or SEIS tax relief. Investors receive other tax benefits that further enhance the appeal of investing via EIS and SEIS (see the illustration on page two). For an investor, these tax reliefs mean the cost of investment and the risks involved are often considerably reduced and return potential is enhanced. If you are seeking funding for your business, being eligible for the EIS or SEIS schemes can be a big help in attracting investment. Before a company can raise finance through EIS or SEIS, it should ensure it meets the eligibility criteria set down by the government for the schemes (see pages six and seven for more details). It is often prudent for companies seeking funding to go through a process known as Advance Assurance, in which HM Revenue & Customs (HMRC) advises on whether a company is eligible for EIS or SEIS. Securing this assurance will make it easier to obtain external funding, as it reassures prospective investors that they will receive the appropriate tax relief. How could EIS and SEIS help my business to grow? The financing your business receives can be used for most purposes aimed at expanding a business, from employing staff and opening premises to researching and developing products, as well as sales and marketing. EIS and SEIS had provided funding worth almost £15bn to nearly 30,000 UK businesses to the end of the 2015 tax year, covering sectors including High Street retail, catering, transport and logistics, engineering, pharmaceuticals, technology, media and many more. University spin-outs, start-ups, newer companies and more mature, established businesses all benefited. In addition to the funding itself, many companies receive other benefits from EIS and SEIS investment. A common – and often very valuable – benefit is that the investors themselves, whether an individual or group of individuals (often known as ‘business angels’) or a professional investment manager running an EIS or SEIS fund, often provide guidance and direct, hands-on help to the companies in which they invest. Business angels are often businesspeople and professionals themselves and can draw on their own experience and networks of contacts to assist in growing a business (see case study opposite for one company’s story), while professional investment managers provide expertise and support to their investee companies as part of their overall service proposition to businesses seeking funding. How can EIS and SEIS help my business? If you own a business or plan to start one then you may at some point want to seek external finance to fund its expansion. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) have been designed by the UK government to make it easier for small and medium-sized enterprises (SMEs) to raise finance to grow. How do EIS and SEIS make it easier for a company to obtain funding? 5 EIS and SEIS have provided funding worth £15bn to nearly 30,000 UK businesses in a diverse range of sectors and trades. New companies and more mature, established businesses have all benefited. £15bn Case study What is it? Moo.la is a low-cost, simple and easy-to-use-and- understand investment service for individuals, employers and financial intermediaries. What role have SEIS and EIS played in Moo.la’s story? From its start-up in September 2015, Moo.la has been funded with SEIS financing. A second round of external funding has recently been completed with EIS investors. In total, just over half of Moo.la’s funding has come from SEIS and EIS investment. Gemma Godfrey, founder and CEO, explains: “In 2015 it was just me and an idea. After years of working in investment and financial services, I’d become frustrated with unnecessary complexity, which puts people off and means they often don’t know how much they are paying or what they are paying for. It’s a situation that suits only one group – financial companies themselves. So I had this concept for an investment service that is different – easy to use and understand, with low and transparent costs and in which people can save small amounts but still access high-quality, sophisticated investments. It quickly became clear that employers needed a service like this for their staff, too, and that financial intermediaries, such as financial advisers and wealth managers, uploads/Industriel/ eisa-funding-guide.pdf