Tax efficient business finance for growing companies
For business owners, one of the most useful policies introduced in the 2011 Budget was the enhancement to the Enterprise Investment Scheme (EIS). With the increase in income tax relief from 20 per cent to 30 per cent meaning that this is now a more valuable relief, access to the EIS scheme has also been widened.
As Chartered Tax Advisers, we can help company owners, investors or an existing management team looking to finance a management buyout (MBO) take advantage of the EIS and the tax relief it offers.
Qualifying for the Enterprise Investment Scheme –
Rules for business owners
If you have a business and the opportunity exists to attract investment through the EIS it is necessary to register for the scheme. You also need to meet certain criteria as follows:
The company must be unquoted and must not be under the control of another company or of a company and persons connected with that company.
It must be a qualifying trading company or be the parent company of a qualifying trading group. Certain types of company (for instance those dealing in property) are not eligible.
- A minimum of 50% of the qualifying trade must be carried out in the UK and the business must be permanently established in the UK;
- Gross assets must not exceed £7 million before the EIS share issue (this limit increases to £15m from April 2012;
- The maximum employee limit will increase from 50 to 250 employees from April 2012;
- From April 2012, a maximum of £10million in funding can be raised in any 12-month period under the EIS.
Qualifying for the Enterprise Investment Scheme –
Rules for Investors
- Investors claiming EIS tax relief must satisfy conditions including the following:
- Shares must be ordinary with no preferred rights and must be held for at least three years;
- The shareholding must not exceed 30% of the issuing company either alone or when aggregated with associates. This is measured either by share capital, share capital and loan capital combined or voting rights;
- The investor must not be employed by the issuing company, subject to an exception for certain paid directors or if certain conditions for MBO apply
- EIS relief for management buyouts (MBOs).
Qualifying for the Enterprise Investment Scheme –
Rules for MBOs
In addition to an expansion of the qualifying criteria, tax relief may now be available in MBO (management buyout) situations.
Historically it was often assumed that relief would be denied in MBOs as the investing individuals (usually managers or directors of the old company) were connected with the new company making the investment. However, following a recent decision by the First Tier Tribunal, it may now be possible to obtain EIS relief on future MBOs as well as on certain historical transactions.
To find out how we can help you take advantage of EIS whether as an investor, business owner or to finance an MBO, please contact Lesley Stalker - las@rjp.co.uk or Paul Webb - pw@rjp.co.uk.
