Enterprise investment rebounds strongly after being hit by pandemic
There has been a fall in investment of around 12 per cent in the Enterprise Investment Scheme (EIS), largely caused by the effects of the pandemic.
But that figure was slightly offset by a surge in the sister programme, the Seed Enterprise Investment Scheme (SEIS), which showed an increase of four per cent.
According to HM Revenue & Customs (HMRC), money invested through the EIS, which helps newer firms to find funds to scale up operations, decreased by that figure in the 2020/21 tax year.
The figures reveal that 3,755 companies raised funds under the scheme, which was 11 per cent down on the previous tax year.
The figures confirm a slowdown over the first three quarters of 20/21 tax year, which was the height of the pandemic.
The trend was reversed however, in the last quarter of the tax year, where it rebounded back to pre-pandemic levels. The upward trend is expected to continue as awareness and opportunities to access EIS funding increases.
Better news was the money invested through SEIS, which invests in earlier stage start-ups, was up four per cent, increasing to £175 million across 2,065 companies.
How does the EIS scheme work?
Under EIS, you can raise up to £5 million each year, and a maximum of £12 million in your company’s lifetime.
This also includes amounts received from other venture capital schemes. Your company must receive investment under a venture capital scheme within seven years of its first commercial sale.
The scheme rules must be followed so that investors can claim and keep EIS tax reliefs relating to their shares.
Tax reliefs will be withheld or withdrawn from investors if the rules are not followed for at least three years after the investment is made.
There are different rules for companies that carry out a significant amount of research, development or innovation, and either:
- Want to raise more than £12 million in the company’s lifetime
- Did not receive investment under a venture capital scheme within 7 years of their first commercial sale.
What is the difference with SEIS?
The Seed Enterprise Investment Scheme (SEIS) is a scheme designed to complement the EIS.
It helps companies raise money when it’s starting to trade. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Firms can receive a maximum of £150,000 through SEIS investments.
However, because firms of this kind are riskier, there are two important differences:
- You get a greater income tax break with SEIS than with EIS
- With SEIS capital gains are not deferred: you can halve the capital gains tax you owe.
What kind of companies qualify for SEIS?
To be SEIS-qualifying, a firm must be small and unquoted, have traded for a maximum of two years, have gross assets of less than £200,000 and fewer than 25 employees at the time of investment.
As with EIS, some companies and sectors are excluded, including those dealing in land, commodities, or shares.
If you require support with related matters, please get in touch with your Seymour Taylor representative or contact us at firstname.lastname@example.org or on 01494 552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing on 20 May 2022.