The HMRC has recently changed its recommendations for companies looking to entice investors to buy their shares.
Investors may be eligible for several attractive tax advantages if the the firm is appropriately constructed and qualifies under the enterprise investment scheme (EIS) or Seed EIS criteria.
EIS allows the firm to raise to £5 million a year, with a lifetime limit of £12 million. It includes money received from other venture capital programs as well.
A company must receive venture capital funding within seven years of its first commercial sale.
It is crucial that the issuing company and any qualifying subsidiaries meet the following requirements:
· Before issuing shares, gross assets must not exceed £15 million; after issuing shares, they cannot exceed £16 million.
· The company must have fewer than 250 full-time equivalent employees when issuing shares.
Investing must meet the “risk to capital” condition, which means:
· Growth and development must be the company’s top priorities
· Risk must be associated with the investment for the investors
The acquisition will increase revenue, client base, and personnel.
Investors must obtain and retain EIS tax reliefs on shares if there are several additional sophisticated scheme requirements. Tax reliefs will be withheld or revoked if investors and the firm do not follow the regulations for at least three years following the investment.
Obtaining Advance Assurance from HMRC that the firm is an “EIS-qualified company” is prudent before issuing shares.
Search more about the Enterprise Investment Scheme (EIS) at GOV.UK
A Seed Enterprise Investment Scheme (SEIS) promotes investment in small start-up companies by offering a variety of tax advantages to those who buy new shares in the company. The company must have been operating for at least two years to qualify for SEIS.
A firm can obtain EIS relief on more than one share issuance, with successive share offerings being eligible for EIS relief up to an annual ceiling of £5 million.
Tax reliefs will be withheld or revoked from investors who fail to adhere to the requirements for at least three years after investing.
A qualifying transaction must be ongoing or in progress when an unquoted company issues shares.
A firm and its subsidiaries must also meet the following requirements to qualify for the Seed EIS:
· At the time of issuance, gross assets cannot exceed £200,000.
· Participating in collaboration is not possible
· There are less than twenty-five full-time equivalent workers when shares are issued
Before issuing shares, you should obtain advance assurance from HMRC that your firm qualifies as a qualifying company. See GOV.UK for further information on the seed enterprise investment scheme.
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