Corporation Tax

Enterprise investment scheme ― introduction

Produced by Tolley
  • 19 Oct 2021 22:57

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Enterprise investment scheme ― introduction
  • Summary of guidance notes ― EIS
  • Commercial and tax risk to consider when advising on EIS
  • Application process for EIS and advance assurance
  • Venture Capital Reliefs Team
  • Advance assurance for EIS
  • Advance assurance and potential problems
  • Advance subscription agreements (ASAs)
  • Prospectuses for investors
  • Investments through approved EIS funds

Enterprise investment scheme ― introduction

The enterprise investment scheme (EIS) offers substantial tax incentives to investors in companies which qualify.

In summary, tax reliefs under EIS are as follows:

  1. income tax relief for the investor of up to 30% of the amount invested

  2. disposals of EIS shares after three years may be free from capital gains tax

  3. capital gains tax deferral relief allows investors disposing of any asset to defer gains against subscriptions in EIS shares

  4. losses on EIS shares may be offset against taxable income

  5. EIS investments should qualify for IHT business property relief after two years’ ownership

Summary of guidance notes ― EIS

Topic summaryGuidance note
See the topic summary for SEIS and EIS for detailed comparison of these two schemes for tax incentivised investmentSEIS and EIS ― overview
Detailed guidance on the EIS tax reliefsEnterprise investment scheme tax relief
More guidance on the EIS tax reliefsEnterprise investment scheme deferral relief
Guidance on a qualifying companyConditions to be met by the EIS issuing company
Guidance on being a qualifying investorConditions to be met by the EIS investor
Details on the withdrawal of tax reliefs under EISOccasions resulting in withdrawal of income tax relief
Mechanics of the clawback calculationHow to calculate the clawback of relief
Guidance on the events causing a deferred gain to become chargeableGain deferred through EIS becomes chargeable

Commercial and tax risk to consider when advising on EIS

The tax incentives for EIS investments are intended to encourage investment in high-risk companies. Therefore, there are stringent conditions associated with EIS reliefs and tax advice on EIS should be undertaken and supervised by a suitable experienced practitioner.

Terms of engagement for EIS work should be carefully drafted, in particular because conditions are tested on an on-going basis and tax advisers should ensure that they are not liable for the results of any future action, which will be out of their control, that affects qualification for EIS.

An important part of the process is to advise the investor of the risks

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