Raising Funds Using EIS and SEIS Tax Relief Schemes

Angel investors, by putting their own money into a business, are taking on risk, but will almost always seek to mitigate this by claiming tax relief through EIS or SEIS schemes, which allow investors to offset their investment against income tax and capital gains tax. The Enterprise Investment Scheme (EIS) gives tax relief of 30% on up to £2,000,000 of investments from individuals. If the shares are held for more than three years, proceeds from a subsequent sale are also exempt from CGT. Tax relief under the Seed Enterprise Investment Scheme (SEIS) is even more generous, with tax relief of 50%, but limited to investments of £100,000 per individual. For companies, the first £150,000 raised will be eligible for SEIS relief, after which investors will only be eligible for EIS relief. Companies will also need to confirm that they have spent the bulk of money raised under an SEIS scheme before they can start raising further funds under an EIS scheme. Investors will almost always ask if the company has received advanced assurance from HMRC to show that it is eligible for SEIS/EIS tax relief. Gaining this is a moderately complex task, requiring companies to provide copies of their busies plan, articles, details of trading activities, share prospectus and other information to demonstrate that the company is likely to be compliant. HMRC say they will give a response within four weeks of application and my experience is that they usually meet this, but as with the rest of HMRC, it’s run on a shoestring and I have heard stories of applications taking longer. A change to the scheme in...

Crowdfunding

Crowdfunding as a source of investment been around since 2008, driven by the ongoing development of the internet and the low interest rates prevailing since the financial downturn pushing investors to seek higher returns. It is now a well-established part of the funding environment, with several large companies dominating the sector but a host of smaller companies joining all the time to take advantage of particular niches. This article gives a very brief look at what’s involved in raising funds through crowdfunding, some of the key features of crowdfunding platforms and a few examples of some of the key players. Firstly, one of the most important features of crowdfunding organisations is the type of funding they offer. This falls into three groups – debt, equity and rewards. Debt funding will have a range of payback terms and interest rates depending on the perceived creditworthiness of the investment.  Rewards-based funding is typically aimed at B2C companies with products or services of interest to investors which are provided instead of a financial return – cultural events, games, restaurants etc. Second different platforms will offer one of two models of funding – all or nothing or ‘keep it all’. In the former, the entrepreneur needs to raise all funds required – if the goal isn’t reach, no funds are collected.  By contrast, the keep-it-all model, whatever is collected is handed over to the entrepreneur and its then up to him or her to either develop the business with what’s been raised or had funds collected back to the investors. Thirdly, lending criteria vary from one crowdfunder to another. Funding Circle for example,...