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Shoosmiths SEIS/EIS presentation October 2018

Shoosmiths present a guide to SEIS/EIS for creative businesses.

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Introduction to seis and eis
17 October 2018
www.shoosmiths.co.uk
SEED enterprise
INVESTMENT scheme (seis)
/Enterprise investment scheme
(eis)
£ £ £
SEIS/EIS-qualifying
investee company
£ £ £
Nominee
£££
SEIS/EIS-qualifying
investee company
Seis & eis in a nutshell
• Government investment schemes designed to encourage
investment in new/SME businesses
• Difference between the two – size of companies they apply to
• SEIS
• Designed for very early stage companies
• Companies cannot receive as much funding as under EIS however
investors receive greater tax breaks
• EIS
• Designed for SME businesses
• Whilst tax breaks are lesser for investors, the amount of money which can be
received each year/in the company’s lifetime is greater
• Companies can issue shares under both SEIS and EIS
• Make sure you issue the shares after you receive the funding!
Tax relief for investors
TAX SEIS EIS
Income tax Reduced by 50% of the sums invested
up to £100k. Shares need to be held for
the relevant “three” year period.
e.g. A invests £100k in a qualifying
company and her income tax liability is
reduced by £50k (i.e. 50% of £100k)
Reduced by 30% of the sums invested up
to £1m (or from 6.4.18 up to £2m invested
in knowledge intensive (KI) companies).
Shares need to be held for the relevant
“three” year period.
e.g. A invests £100k in a qualifying
company and her income tax liability is
reduced by £30k (i.e. 30% of £100k)
Capital gains On investment, can defer CGT up to half
of the amount of their SEIS investment.
On disposal, if qualify for income tax
relief then there is no CGT on any gain.
On disposal, share loss relief should be
available
On investment, can defer CGT up to the
amount of their EIS investment.
On disposal, if qualify for income tax relief
then there is no CGT on any gain.
On disposal, share loss relief should be
available
SEIS conditions
(main conditions only)
INVESTOR COMPANY SHARES
No substantial interest (broadly 30%) Objective to grow and develop and
significant risk of loss of capital
Ordinary shares without preferential
rights re winding up and dividends
Cannot be under the control or another
company and subsidiaries must be
qualifying
No linked loan Carries on a qualifying activity Not redeemable
Subscribe for genuine commercial
reasons
Unquoted at the time SEIS shares are
issued
Must be fully paid up and subscribed for
in cash
Subscribe for eligible shares on own
behalf (or through nominee)
Gross assets test (£200k or less
immediately before share issue)
No pre-arranged exits
Hold shares for “three” years Fewer than 25 full-time employees when
SEIS shares are issued
Not an employee £150k maximum raise
No previous EIS/VCT investment
EIS conditions
(main conditions only)
INVESTOR COMPANY SHARES
No connection with issuing company Cannot be under the control or another
company and subsidiaries must be
qualifying
Ordinary shares without preferential
rights re winding up and dividends (but
note potential workarounds)
No linked loan Carries on a qualifying activity Not redeemable
Subscribe for genuine commercial
reasons
Unquoted at the time EIS shares are
issued
Must be fully paid up and subscribed for
in cash
Subscribe for eligible shares on own
behalf (or through nominee)
Gross assets test (£15m immediately
pre-investment; £16m immediately post
investment)
No pre-arranged exits
Hold shares for “three” years Fewer than 250 full-time employees
when EIS shares are issued (500 if KI)
Other shares held by investor in
company must be subscriber shares
or EIS/SEIS/SITR shares
Annual limit of £5m (from 6.4.18 £10m if
KI)
Lifetime limit of £12m (£20m if KI)
EIS investment within seven years (10 if
KI) of first commercial sale (or from
6.4.18 date on which turnover reached
£200k for KI) or exclusion applies

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Shoosmiths SEIS/EIS presentation October 2018

  • 1. Introduction to seis and eis 17 October 2018 www.shoosmiths.co.uk
  • 2. SEED enterprise INVESTMENT scheme (seis) /Enterprise investment scheme (eis) £ £ £ SEIS/EIS-qualifying investee company £ £ £ Nominee £££ SEIS/EIS-qualifying investee company
  • 3. Seis & eis in a nutshell • Government investment schemes designed to encourage investment in new/SME businesses • Difference between the two – size of companies they apply to • SEIS • Designed for very early stage companies • Companies cannot receive as much funding as under EIS however investors receive greater tax breaks • EIS • Designed for SME businesses • Whilst tax breaks are lesser for investors, the amount of money which can be received each year/in the company’s lifetime is greater • Companies can issue shares under both SEIS and EIS • Make sure you issue the shares after you receive the funding!
  • 4. Tax relief for investors TAX SEIS EIS Income tax Reduced by 50% of the sums invested up to £100k. Shares need to be held for the relevant “three” year period. e.g. A invests £100k in a qualifying company and her income tax liability is reduced by £50k (i.e. 50% of £100k) Reduced by 30% of the sums invested up to £1m (or from 6.4.18 up to £2m invested in knowledge intensive (KI) companies). Shares need to be held for the relevant “three” year period. e.g. A invests £100k in a qualifying company and her income tax liability is reduced by £30k (i.e. 30% of £100k) Capital gains On investment, can defer CGT up to half of the amount of their SEIS investment. On disposal, if qualify for income tax relief then there is no CGT on any gain. On disposal, share loss relief should be available On investment, can defer CGT up to the amount of their EIS investment. On disposal, if qualify for income tax relief then there is no CGT on any gain. On disposal, share loss relief should be available
  • 5. SEIS conditions (main conditions only) INVESTOR COMPANY SHARES No substantial interest (broadly 30%) Objective to grow and develop and significant risk of loss of capital Ordinary shares without preferential rights re winding up and dividends Cannot be under the control or another company and subsidiaries must be qualifying No linked loan Carries on a qualifying activity Not redeemable Subscribe for genuine commercial reasons Unquoted at the time SEIS shares are issued Must be fully paid up and subscribed for in cash Subscribe for eligible shares on own behalf (or through nominee) Gross assets test (£200k or less immediately before share issue) No pre-arranged exits Hold shares for “three” years Fewer than 25 full-time employees when SEIS shares are issued Not an employee £150k maximum raise No previous EIS/VCT investment
  • 6. EIS conditions (main conditions only) INVESTOR COMPANY SHARES No connection with issuing company Cannot be under the control or another company and subsidiaries must be qualifying Ordinary shares without preferential rights re winding up and dividends (but note potential workarounds) No linked loan Carries on a qualifying activity Not redeemable Subscribe for genuine commercial reasons Unquoted at the time EIS shares are issued Must be fully paid up and subscribed for in cash Subscribe for eligible shares on own behalf (or through nominee) Gross assets test (£15m immediately pre-investment; £16m immediately post investment) No pre-arranged exits Hold shares for “three” years Fewer than 250 full-time employees when EIS shares are issued (500 if KI) Other shares held by investor in company must be subscriber shares or EIS/SEIS/SITR shares Annual limit of £5m (from 6.4.18 £10m if KI) Lifetime limit of £12m (£20m if KI) EIS investment within seven years (10 if KI) of first commercial sale (or from 6.4.18 date on which turnover reached £200k for KI) or exclusion applies
  • 7. Seis/eis – withdrawal of relief • If, within the “specified period”, one of the following happens, the SEIS or EIS relief may be withdrawn: • The company ceases to be a qualifying company; • The investor ceases to be a qualifying individual; • The shares cease to be eligible shares; • The investor disposes of his shares; • There is a receipt of value; or • The company buybacks non-EIS shares (EIS only). • “Specified period” – commences on date SEIS or EIS shares are issued and ends after three years or, if later, three years from when the company starts trading
  • 8. SEIS/Eis – what is a QUALIFYING activity/trade? • Permanent establishment in the UK • Carry on a trade with a view to profit • Not an excluded activity i.e. excludes dealing in land, banking, leasing activities, receiving royalties or licence fees (unless the company has created the intangible asset itself), providing legal or accountancy services, farming, hotels, care homes, property development, energy-generation
  • 9. SEis/EIS – using the money • Growth and development • Can’t use money to acquire: • Shares • Business/trade (EIS – only) • Intangible assets/goodwill already used in a trade (EIS – only) • Must be used within 2 years of investment for EIS and 3 years of investment for SEIS
  • 10. HMRC Process • Advance assurance? • Timing : HMRC say aim is 15 working days but no longer than 40 working days (although complex cases can take longer) • Currently seeing wide variation • Only confirms position regarding company and shares, not (S)EIS investors • (S)EIS1 form submitted by company post-completion
  • 11. Meet the team Jack Roberts E: jack.roberts@shoosmiths.co.uk T: 03700 867390 Laura Harper E: laura.harper@shoosmiths.co.uk T: 03700 865881 Tom Wilde E: tom.wilde@shoosmiths.co.uk T: 03700 868713 Kate Featherstone E: kate.featherstone@shoosmiths.co.uk T: 03700 864224