Learn the step-by-step process to apply for the Enterprise Investment Scheme (EIS), including issuing shares and submitting your compliance statement.
The Enterprise Investment Scheme (EIS) is a pivotal initiative for UK startups seeking to secure funding while offering attractive tax incentives to investors. Navigating the EIS compliance requirements can be complex, but understanding each step is crucial for successful application and sustained investment.
Understanding the Enterprise Investment Scheme (EIS)
EIS is one of the UK government’s venture capital schemes designed to stimulate investment in small, high-risk companies. It provides significant tax reliefs to individual investors who purchase new shares in qualifying businesses, thereby making your company more attractive to potential backers.
Key Benefits of EIS
- Tax Relief for Investors: Individuals can receive up to 30% income tax relief on investments.
- Capital Growth: Potential for significant growth in share value.
- Loss Relief: Investors can offset losses against their income or capital gains.
Eligibility Criteria for EIS Compliance
Before applying, ensure your company meets the EIS compliance requirements:
Company Requirements
- Permanent Establishment: Must be based in the UK with no plans to list on a recognized stock exchange.
- Asset and Employee Limits: Gross assets must not exceed £15 million before shares are issued and £16 million immediately after. The company should have fewer than 250 full-time employees.
- Qualifying Trade: Engage in a qualifying trade, primarily involving growth and development rather than property or finance.
Investment Limits
- Annual and Lifetime Caps: Your company can raise up to £5 million each year and a total of £12 million over its lifetime through EIS and other similar schemes.
- Age of Company: Must be within 7 years of the first commercial sale.
Risk to Capital Condition
Investments must pose a genuine risk of loss to investors, ensuring that the funds are used for long-term growth and development.
Step-by-Step Process to Apply for EIS
1. Assess Eligibility
Verify that your company and proposed investment meet all EIS compliance requirements. Consider obtaining advance assurance from HMRC to confirm eligibility before proceeding.
2. Prepare Documentation
Gather necessary documents, including:
- Business plan and financial forecasts.
- Latest accounts.
- Explanation of how you meet the risk to capital condition.
- Memorandum and articles of association.
- Information memorandum or prospectus used for fundraising.
3. Issue Shares
Ensure that the shares you issue are full risk ordinary shares without special rights or redemption options. Payment for shares must be made in full and in cash at the time of issuance.
4. Complete the Compliance Statement (EIS1)
Fill out the EIS1 form accurately, detailing your company’s eligibility and the specifics of the share issuance. This form must be submitted to HMRC to allow investors to claim their tax reliefs.
5. Submit to HMRC
Send the completed EIS1 form to HMRC within the stipulated timelines:
- After carrying out a qualifying business activity for at least 4 months.
- Within 2 years of the activity or the end of the tax year in which shares were issued.
6. Receive Compliance Certificate (EIS3)
Upon approval, HMRC will issue a compliance certificate, which you must provide to your investors. This certificate is essential for investors to claim their tax reliefs.
Common Pitfalls to Avoid
- Non-Compliance with Deadlines: Missing submission deadlines can disqualify your application.
- Incorrect Documentation: Ensure all documents are accurate and complete to meet EIS compliance requirements.
- Misuse of Funds: Funds raised must be used exclusively for qualifying business activities within the specified timeframe.
Leveraging Oriel IPO for EIS Applications
Navigating the complexities of EIS compliance requirements can be streamlined using platforms like Oriel IPO. Oriel IPO connects UK startups with angel investors, offering a commission-free marketplace and comprehensive educational resources to facilitate informed investment decisions.
Conclusion
Applying for the Enterprise Investment Scheme involves meticulous adherence to EIS compliance requirements. By understanding the eligibility criteria, preparing thorough documentation, and following the application steps diligently, your company can leverage EIS to secure vital funding for growth and innovation.
Ready to fund your startup with EIS? Visit Oriel IPO today and connect with investors who can help take your business to the next level!
