Enterprise Investment Schemes Uncategorized

Venture Capital Schemes

Following a consultation this Spring the Government has decided to overrule the sunset clauses for both the Enterprise Investment Scheme (EIS) and the Venture Capital Trust (VCT) scheme, which were both due to end by 6 April 2025.

The similar Seed Enterprise Investment Scheme (SEIS), designed for early stage trading companies, will be expanded.

The amount each investor can subscribe for new shares under the SEIS will be doubled to £200,000 per year from 6 April 2023. This would give an investor, who puts up the maximum amount in one year, £100,000 of income tax relief. The shares acquired are also free of CGT if they are held for at least three years and the income tax relief is not withdrawn.

SEIS also offers CGT reinvestment relief at the rate of 50% of the amount of gain reinvested in SEIS shares, if the investment is made within the same tax year as the gain was realised. However, the gain must be real gain, not a deemed gain, or a gain which has been held-over or deferred. To benefit from reinvestment relief the taxpayer must also claim the income tax relief on the subscription for the shares.

The cap on the amount for the company can raise under the SEIS will also be increased from £150,000 to £250,000. The gross assets cap for companies using the SEIS will be also be increased from £200,000 to £350,000.

Currently such companies must be within two years of starting their trade when they receive funds under SEIS, this age limit will be extended to three years.

For more information please contact us.

Enterprise Investment Schemes

Venture capital schemes

New compliance statements for EIS, SEIS and SITR

If you use, or are considering using, one of the venture capital schemes to raise money for your small company or social enterprise (schemes: SEIS, EIS or SITR) you need to be aware that the compliance statement, formerly known as form SEIS1 or EIS1, has changed.

The new compliance statement must be completed online and every question must be answered except those marked optional. However, the form can’t be saved while you complete it, and you can’t view all questions until you come to them. Once the compliance statement is completed it must be printed and posted, or emailed to HMRC.

We have included a link below to the 2014 PDF version of the EIS1 form to give you an idea of the questions which are asked, but this is only for reference. You should not use this PDF EIS1 form as HMRC has a new procedure for approving company applications under the VC schemes. Each successful application is given a unique reference number, which must be included on the compliance certificates the company gives to its investors.

Links to the new compliance statements are included within the HMRC guidance for the particular scheme.

PDF of 2014 version of EIS1

Guidance for EIS applications

Guidance for SEIS applications 

Guidance for SITR applications

Enterprise Investment Schemes

SEIS Qualifying Conditions

Seed Enterprise Investment Scheme (SEIS)

Click on this image to see more about SEIS and EIS Advisory

When you wish to use a venture capital scheme to allow equity investors to claim tax relief, you need to understand the conditions for the company to qualify before the investments are made. The best way to do this is to read the law, or approach us for advice. It’s a pity that HMRC didn’t do this before declining an application to use the SEIS by a small company in Oxford.

The Seed Enterprise Investment Scheme is specifically designed for young companies to raise relative small amounts of start-up capital. The company is permitted to raise up to £150,000 over a three year period, and the maximum investment per taxpayer is £100,000 per tax year. There is no minimum investment for either the company or for the equity investor.

Oxbotica Ltd, a spin-out company from Oxford University, applied to use SEIS for part of its initial equity capital. It was formed with £1000 of share capital and three individuals wanted SEIS relief on their share of this which amounted to just £316. In addition the company received a substantial loan from the University.

As with any risky venture, the investors were looking to the long term gain on the shares, so they were not very interested in 50% income tax relief on the investment, but they were attracted by 100% exemption from CGT once the shares had been held for three years.

HMRC declined the company’s application to use SEIS on these grounds:

  • The shares were subscriber shares – this is irrelevant as long as the shares are subscribed for in cash and are fully paid up.
  • The small amount of funding wasn’t of meaningful use to the business – this is an invented condition as there is no minimum investment requirement.
  • The real purpose of the share issue was to provide CGT relief to investors – irrelevant if the money is used for the business’ expenses – which it was.

The tax tribunal had no problem in agreeing with the taxpayer that SEIS was applicable, but it’s disappointing that the statutory review process didn’t reverse the initial HMRC decision, which was it was so clearly outside the law.

Oxbotica Ltd v HMRC TC06538