Sometimes it can be difficult to find finance for a project within your business. You should not underestimate the value that both the Enterprise Investment Scheme and crowdfunding can have as you work towards success.
By going down the EIS (Enterprise Investment Scheme) route, the Government is encouraging corporations to grow and interest qualifying investors.
To help high-risk trading companies to increase investment by offering a variety of tax reliefs to investors who buy new shares in the businesses involved, the EIS provides the following benefits:
- A deferral of EIS Capital Gains Tax for the life of the investment on the amount subscribed.
- 30 per cent EIS income tax relief on the amount subscribed, which can be up to a maximum investment of £1 million in the 2017/18 tax year and/or £1 million which is carried back to the 2016/17 tax year for a minimum of three years.
- 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.
From looking at the above, we can see that the EIS means that if a taxpayer in the UK was to invest £100,000 into a qualifying company, then they will receive a £30,000 tax rebate from Her Majesty’s Revenue and Customs — so long as their income tax liability has exceeded £30,000 in the previous tax year.
This is an outline to the Enterprise Investment Scheme. Much more information about the initiative can be found on the GOV.UK site or here, including the complete breakdown and rules on the various tax reliefs available, how tax relief can be claimed, times when tax relief can be reduced or withdrawn and how a company can qualify for the EIS.
Let’s set the scene. You’ve been in the business industry for a while. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business.
This leads to self-certification needing to be completed to become a qualifying investor. Before they were provided with a presentation, brochure and application form about the opportunity. Those still interested in the investment would then be expected to sign an Investment Memorandum, and then perform their own due diligence and negotiate terms of their investment. Even then the process wasn’t complete, as significant ‘know your client’ procedures would need completing before funds were transferred to a lawyer’s account.
This was probably a slow process and required investors to arrange for their own due diligence and cover any extra costs. Fortunately, crowdfunding has made the entire process much more efficient.
To gain more support for a project and to raise awareness and money, Crowdfunding can be ideal. This is especially the case for small business which had previously been turned down by High Street banks — being able to appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for a share in the business. Benefits from crowdfunding include:
- You receive advocates who will support both a business and their idea, becoming part of the journey and making for appealing ambassadors when the project develops in the future.
- Additional funding can be unlocked, such as grants, if a charity or community group or investors, loans or a pre-cursor to an equity crowdfunding campaign if a business.
- While creating and launching a project via a crowdfunding platform, those with the idea will need to think about how best to market the idea — developing their marketing skills in the process.
- Validation is received by the fact that small investors and members of the public are on board with an idea and are already paying or contributing in order to bring it to market.
Current Capital, which guides individuals through their investment journeys, explained the benefit of each initiative above which will give you a clearer insight as to how each work.