Is EIS still an attractive incentive for investors?
Before the 2017 Autumn Budget there was concern that the popular Enterprise Investment Scheme (EIS) could be about to be withdrawn. In the end this popular investment incentive lived to fight another day, but there are some changes and not all of them are bad.
Specifically, EIS has been made more generous for knowledge intensive companies, both in terms of how much the company can raise (and period over which it can first raise EIS investment) and how much the individual can invest. This applies to shares in companies carrying out a high level of innovation, are creating IP they intend to exploit or where at least 20% of the workforce is skilled. For companies that don’t meet these criteria the investment limits are unchanged.
It’s not all good news though. From 6 April 2018 EIS relief will not be available where there is only limited risk to the investor’s capital. This means that companies where growth is linked to the increase in value of capital assets rather than trading activities will be excluded. On the other hand, genuine entrepreneurial companies should still be qualifying EIS investments (subject to them meeting all the other existing criteria of course).
One of the attractions of EIS for fund raising companies has been the ability to seek advance assurance from HMRC that the company’s shares will be qualifying EIS investments. In a cost saving move, from January 2018 HMRC will only consider applications for advance assurance where either prospective investors have already been identified and can be named in the application or when a fund manager or other promoter is in place. This could make life difficult for companies seeking crowd funding without going through a third party.
Nevertheless, EIS continues to be a valuable tool for companies raising capital, and Ensors’ corporate tax team is available to help them through the process.