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Home Finance A Guide To Investing In Enterprise Investment Scheme Companies

A Guide To Investing In Enterprise Investment Scheme Companies

Investors are always looking for new ideas to invest in. While there are many options out there, investing in enterprise investment schemes (EIS) qualifying startups offers some unique benefits that can be appealing to investors. In this guide, we’ll outline what EIS companies are and what advantages you could derive from them

What is the Enterprise investment scheme?

The Enterprise Investment Scheme (EIS) provides relief for investors investing in qualifying startups that are in the earliest stages of development. The investment must be for shares that have been fully paid up, in cash, when they are issued, and these must be full-risk ordinary shares, not redeemable with no preferential rights other than certain fixed preferential dividend rights. There are several possible benefits to investing under the EIS. 

EIS Tax reliefs for the investor

There are several possible benefits to investing under the Enterprise investment scheme:

-Investors investing in EIS qualifying startup may receive income tax relief of 30% on investments of up to £1 million per year.

-Capital gains tax (CGT) may be deferred on the disposal of EIS shares, as long as the shares have been held for at least three years.

-Losses on the disposal of EIS shares may be offset against other taxable income.

-There is no limit on the amount that can be invested in an enterprise under the EIS or SEIS in any one tax year, provided that the total amount invested does not exceed £1 million.

Qualifying features for a eis qualifying start-up

-The start-up in which you invest must be a qualifying company, which means that it must be carrying on a qualifying trade and must meet a number of other conditions.

-The enterprise must not have more than 250 full-time employees at the time of investment.

-The enterprise cannot be under the control of another company.

-The enterprise cannot have raised more than £12 million in total from all sources before the EIS investment is made.

-The enterprise must be carrying on a business in a qualifying sector, which includes most manufacturing and service industries but excludes certain excluded activities such as financial services, farming and forestry, property development and coal and steel production.

How to claim EIS tax reliefs as an investor in startups

The enterprise investment scheme (EIS) offers tax relief to investors who subscribe to shares in qualifying companies. Before investing in a start-up, you must check that they have obtains advanced assurance from HMRC, stating that they are likely to qualify for EIS relief. After your investment, to claim the EIS tax reliefs, you must first obtain an EIS1 form from the company and then submit it to HM Revenue and Customs (HMRC) with your income tax return.

You can find out more about the enterprise investment scheme and how to claim the relief by reading the guidance on GOV.UK.

In sum

The Enterprise Investment Scheme (EIS) is a government-backed program that encourages investments in UK based startups. To qualify for EIS, your company must meet certain criteria, and you as an investor must meet certain requirements. If everything checks out, you can claim EIS tax reliefs on your taxes to reduce the amount of money you ow to HMRC. We’ve outlined all of the details here so that you can decide if this investment opportunity is right for you. Have you invested in an EIS company? Tell us about your experience in the comments below.

Am Content Writer at Newswire Club, Here am sharing my ideas about blogging, business latest trends and tips.

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