EIS & SEIS Relief Workshop - Plus Accounting, Chartered Accountants
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Plus Accounting held a Workshop at Myhotel in Brighton in March 2014 about the EIS and SEIS Reliefs. Find out here how they could benefit you and your business.
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EIS & SEIS Relief Workshop - Plus Accounting, Chartered Accountants
- 1. beyond accounts What can EIS & Seed EIS do for your business? Presentation by Peter Hedgethorne & Laura Salt
- 2. beyond accounts Introduction • Introduction – Peter Hedgethorne & Laura Salt • Attendees to introduce themselves & advise what they hope to take away from today • Brief outline of the format for today
- 3. beyond accounts Find out how the process works • What is EIS & how does it work? • What is different about Seed EIS?
- 4. beyond accounts What are the rules for EIS? • History – Business Start Up Scheme, BES, EIS (Major – 1990s) • Individual investor limit - £1m pa 2013/14 • Company investment limit - £5m pa 2013/14
- 5. beyond accounts What are the rules for EIS? • Income tax relief for investor - 30%, can be carried back subject to p/y limit
- 6. beyond accounts EIS Relief Example Gross investment in EIS shares £10,000 Income tax relief at 30% £3,000 Net cost of EIS investment £7,000
- 7. beyond accounts What are the rules for EIS? • Capital gains on disposal of shares after 3 years are exempt
- 8. beyond accounts What are the rules for EIS? • Income tax relief available on losses on disposal of shares, net of income tax relief obtained EIS Relief Example: Loss Relief • You may also have claimed capital gains deferral relief of £2,800
- 9. beyond accounts What are the rules for EIS? EIS Relief Example: Capital Gains Deferral Relief NB The deferred charge of £2,800 is brought back into charge when the EIS shares are disposed of but investors have an opportunity to defer this again by reinvesting in another EIS company. Assumes top rate CGT of 28% Can apply to gains 3 years before or 1 year after investment
- 10. beyond accounts What are the rules for EIS? • Tax relief clawed back if company rules not met for 3 years • Paid directors and employees excluded, unless director where entitlement to payment starts after issue of shares (business angels) • Individual can have no more than 30% of shares/votes/capital – includes associates’ rights (ancestors/descendants/spouses) • Company employees – less than 250 • Company gross assets - £15m before and £16m after
- 11. beyond accounts What are the rules for EIS? • Company qualifying activities – non-qualifying are defined • Money must be used within 2 years • Must be trade or R&D for 4 months • Newly-issued non redeemable ordinary shares with no preferential rights issued for cash • Company need not be UK resident, but must have permanent establishment here • Value received by investor will lead to withdrawal of all or part of the reliefs • Company must be unquoted
- 12. beyond accounts What are the rules for SEIS? • History – From April 2012 and originally until April 2017, now indefinite. • Individual investor limit - £100k pa 2013/14 • Company investment limit - £150k pa 2013/14
- 13. beyond accounts What are the rules for SEIS? • Income tax relief for investor - 50%, can be carried back subject to p/y limit
- 14. beyond accounts SEIS Relief Example Gross investment in SEIS shares £10,000 Income tax relief at 50% £5,000 Net cost of SEIS investment £5,000
- 15. beyond accounts What are the rules for SEIS? • Capital gains on disposal of shares after 3 years are exempt SEIS Relief Example: Capital Gains Tax Relief
- 16. beyond accounts What are the rules for SEIS? • Income tax relief available on losses on disposal of shares, net of income tax relief obtained SEIS Relief Example: Loss Relief Gross Investment into SEIS shares £10,000 Less income tax relief at 50% £5,000 Less loss relief £5,000 at 45% £2,250 Net cost of investment £2,750
- 17. beyond accounts What are the rules for SEIS? SEIS Relief Example: Capital Gains Exemption Assumes top rate CGT of 28% Applies to gains made in year of investment Gross Investment into SEIS shares £10,000 Less income tax relief at 50% £5,000 Less capital gain exemption £1,400 Net cost of investment £3,600
- 18. beyond accounts What are the rules for SEIS? • Tax relief clawed back if company rules not met for 3 years • Employees and their associates (ancestors/descendants/spouses) excluded, but not directors even if already paid. • Individual can have no more than 30% of shares/votes/capital – includes associates’ rights • Company employees – less than 25 • Company gross assets - £200k before investment • Company must not have been trading for more than 2 years
- 19. beyond accounts What are the rules for SEIS? • Company qualifying activities – non-qualifying are defined • Company must use money within 3 years • Company must use 75% of invested funds before relief can be allowed • Newly-issued non redeemable ordinary shares with no preferential rights issued for cash • Company need not be UK resident, but must have permanent establishment here • Company must be unquoted • Value received by investor will lead to withdrawal of all or part of the reliefs
- 20. beyond accounts Legal Documentation Term Sheet Subscription & Investment Agreement Articles of Association Completion & Investment Disclosure Letter
- 21. beyond accounts Term Sheet/ Heads of Terms • Key Financial & Legal Terms – Subscription Price & Investment Schedule* – Conditions Precedent* – Completion timetable* – Confidentiality – Exclusivity – Costs • Generally NOT legally binding*
- 22. beyond accounts Common Drafting Pitfalls Common Pitfalls “Qualifying Trade” Independence Timings Connected Parties Use of Money Raised Requirement Companies in “Difficulty”
- 23. beyond accounts Subscription & Investment Agreement Key Consideration Issues Decision Making • Founder -v- Investor Control • Flexible -v- Rigid Reporting • Reserved Matters • Deadlock Investor Protection • Warranties/Indemnities • Anti-dilution • Tag Along provisions • Access to Information • Restrictive Covenants Founder Protections • Board Protection • Drag Along • Good Leaver/Bad Leaver Exit Longstop date
- 24. beyond accounts Disclosure - EIS Purpose •Investor Protection against wrongful inducement •Complete and accurate disclosure of the condition of the company and its history •Limitation of liability •Liability for breach of warranty to the extent disclose •Warranty –v- Indemnity protection Scope • Legal Status • Accuracy of Financial Statements • Business Plan • Assets including IP • Liabilities • Material Contracts • Litigation
- 25. beyond accounts Completion Investor Board Minutes Shareholder Consents • Issue of Shares • Adoption of articles Point of Investment & Payment for Shares Execution of Documents
- 26. beyond accounts Costs involved? • We will briefly explain the costs for the work completed by both Accountants & Solicitors • It is important that you advise both your Accountant & Solicitor from the outset so that they work can together.
- 27. beyond accounts Any comments? Do you have any questions about any of the matters discussed today? We appreciate that this topic is complex and some of the issues you have may need to be discussed at a later date. Contact details: lsalt@fortis-law.co.uk peterh@plusaccounting.co.uk Thank you for listening. Disclaimer: The information in this presentation is an overview and does not contain all information necessary to action EIS & SEIS.