All about the Enterprise Investment Scheme (EIS) and how our investors may benefit

Before we launched our crowdfunding campaign with Crowdcube, we submitted our plans to HMRC and received advance assurance that the proposed share issue is likely to qualify for Enterprise Investment Scheme (EIS) tax reliefs relating to our shares.

The Village Haberdashery is crowdfunding!

I am not authorised to advise you about your taxes, but I do want to make sure you are aware of EIS tax relief because you may be able to benefit from it if you’re one of our investors! In this post, I’m going to borrow content from Crowdcube’s website about EIS to help explain it to you but please visit Crowdcube or HRMC if you want to find out more about EIS and how it works.

The following information is excerpted from Crowdcube’s website:

The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax efficient way to invest in small companies – up to £1,000,000 per person per year in qualifying companies.

What makes it even more attactive is the ‘carry back’ facility which allows the all or part of the cost of shares acquired in one tax year to be treated as though those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.

Examples

Here’s a few examples of how EIS tax relief works. To make the maths easy, let’s assume you invest £10,000 in each case and you’re in the 45% tax bracket.

 

Case 1: The company does well and doubles its value and you hold the shares for three years

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

Capital Gains Tax = £Zero

Your gain = £13,000 (£10,000 profit from the sale plus £3,000 income tax relief)

 

Case 2: The company value stays the same

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

Share sales = £10,000

Your gain = £3,000 (from the income tax relief)

 

Case 3: The company closes and your shares are worth nothing

Investment = £10,000

Income Tax relief = £3,000 (as a reduction in your income tax bill)

At risk capital = £7,000

Loss relief on at risk capital @ 45% = £3,150

Your actual loss = £3,850    (£10,000 – [£3,000 + £3,150])

I hope this is helpful! Please do check out Crowdcube or HRMC for more information.

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