On investment into a company an application on your behalf will be made to HMRC for the EIS3 certificate in order to claim EIS relief for your investment. The application to HMRC cannot be made until the company has carried on its trade for a minimum of four months. Subject to this, EIS3 certificates are typically sent out to investors by the company within a few months of each underlying investment depending on when the forms are received from HMRC.
The EIS3 certificate enables you to claim your income tax relief and capital gains tax deferral, normally by making the appropriate entries on your own tax return.
Each company in which an investor invests must initially (i.e., at the time of issue of the shares) not be listed on a recognised stock exchange (as defined for the purposes of EIS Relief) and there must be no “arrangements” in place for it to become so listed. In addition, throughout the three year EIS period, it must not be a subsidiary
The qualifying trade for which the EIS monies are to be
Although it is possible for qualifying activities to be carried on anywhere in the world, the company that issues the shares must have a “permanent establishment” in the United Kingdom.
For EIS purposes, the value of the gross assets of the company and any subsidiaries must not exceed £15 million immediately before the issue of shares and £16 million immediately afterwards.
Subject to certain exceptions, the maximum EIS fundraising per company is restricted to £5 million per year and a lifetime limit of £12 million (£20,000,000 for "knowledge-intensive" companies). The maximum number of full-time employees (or full-time equivalent) in the company at the time of investment is restricted to fewer than 250.
Most types of trades are qualifying trades for EIS purposes but trades which consist substantially in the following are excluded:
The trade of the company must generally be less than seven years old at the time of investment. Companies “in financial difficulty” cannot receive EIS investment. HMRC’s guidelines regard a company as being in financial difficulty where it is unable, whether through its own resources or with the funds which it is able to obtain from its owners, shareholders or creditors, to stem losses which, without outside intervention by the public authorities, will almost certainly condemn it to go out of business in the short or medium term.
Shares only qualify for EIS Relief if they are ordinary shares which do not, at any time during the three year EIS period, carry any present or future preferential right to dividends (other than to certain fixed rate non-cumulative dividends) or to an investee company’s assets on its winding up, or any present or future right to be redeemed.
Please note that this is only a condensed summary of the taxation legislation and should not be construed as constituting advice which a potential investor should obtain from his or her own investment or taxation adviser. The value of any tax reliefs will depend on the individual circumstances of investors.
Sapphire Capital Partners LLP does not give tax advice and recommends that you consult a tax adviser if you are in any doubt about any of the technical aspects of the SEIS legislation.
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