Claiming EIS Tax Reliefs – Here’s Everything You Need to Know
Formally presented as the successor to the 1994’s Business Expansion Scheme, the EIS, also known as the Enterprise Investment Scheme, was one of the initial venture capital schemes launched in the UK. The primary purpose of the same was to encourage investment into unquoted early-stage businesses.
While the scheme has undergone significant changes in all these years, the main goal has remained the same and has shown to be impressively successful. Since its launch, the Enterprise Investment Scheme has attracted over £24 billion of investment in more than 33,000 scaleups and startups. A major fraction of this specific scheme’s success throughout the last three decades can be referred to the wide range of generous tax relief the scheme offers capitalists and the substantial risk of cutting down the benefits they boast.
The Enterprise Investment Scheme offers some excellent tax benefits to angel investors in London. The most appreciated of these benefits is the 30% tax relief that EIS allows on the merit of an investment. Before we explore how making an EIS investment tax relief can benefit, let’s go through this brief step by step guide on how it can be claimed.
The most appropriate way EIS tax relief can be preempted will vary based on individual circumstances, including which year the relief is being booked from and how you choose to claim it. The foremost thing to get ahead with is an EIS3 form that the company issuing the shares. HM Revenue and Customs may request to check your EIS3 certificate for any EIS tax claim.
In the “Other tax reliefs” section of the additional information form on Page 2, the total amount that has been subscribed for under the Enterprise Investment Scheme is mentioned in box 2.
- Please note that the total entered is the amount subscribed, not the relief amount, further calculated for you unless defined below. The maximum amount is £1 million.
- Include this in the outlay if you have already secured some relief during the financial year by any reduction in payment on account or change in the PAYE code. Still, if an amount is claimed from the earlier year, the amount is excluded.
Other details for each investment should then be mentioned in the “any other information” box on Page 4 or 19 on Page 7 of the tax return form. It should cite:
- The name of the startup invested into
- The total amount on which you are planning to claim relief this year
- The date of issue of the shares
- The name of the HMRC office granting the certificate and their reference
- All investments should be mentioned, where some relief is already claimed, even if the total amount is not claimed.
- How do you wish the EIS tax relief to invest over £1 million?
At any time, if you choose to carry back tax relief on shares that have already been issued this current financial year and you own an EIS3 form, you can obviously include this on your tax return for the previous year. Additionally, an amended return can be filed for the previous year with the paid back amount included, given that you are allowed for amendments.
If you were paid through PAYE, you could claim tax relief through compensation of your PAYE code for the particular year. To do the same, you need to finish the third and fourth pages of the EIS3 form, marking the “Tax relief in PAYE coding”, and submit it to HM Revenue and Customs, UK. You will then need to claim on your tax return if it is received from HMRC at the end of the tax year.
ARE EIS ELIGIBLE OPPORTUNITIES WORTH THE INVESTMENT?
One of the finest benefits of investing in EIS prospects would be a great decision. You will have a range of tax reliefs from inheritance to capital gains tax exemption.; However, tax advantages are not the only reason for the rising popularity of the EIS in the UK.
Along with EIS investment tax relief, the scheme also offers professional investors a continuation into including positive impact investments into their business portfolio, notwithstanding simultaneously reaping benefits from the mutual growth startup companies are capable of generating.
Ultimately, it is extremely important to understand that investing in similar opportunities is regarded as a higher return strategy with more risks. Whilst the library of tax reliefs does aid in reducing these risks, investors should always organize ample due diligence on a startup before parting with their capital for the best chance of growth.