get eis/seis savvy
DESCRIPTION
Slides from 'Get SEIS Savvy' - A Coadec event with Magma Chartered Accountants and Legal Clarity. For more information contact [email protected]TRANSCRIPT
Introduction
EIS – Tax benefits for investors
SEIS – Tax benefits for investors
EIS/SEIS – Investor qualifying conditions
EIS – Company qualifying conditions
SEIS – Company qualifying conditions
Common EIS/SEIS tax issues
Legal issues – Private Placements
Offer of shares
Business plan / Information Memorandum
Risks
Investor participation and control
The investment
Qualification for relief
Withdrawal of relief
Investment Agreement and Articles
Some other thoughts for the future
Conclusion
Any Questions
Enterprise Investment Scheme (“EIS”)
• Existed in various forms since 1994
Seed Enterprise Investment Scheme (“SEIS”)
• Introduced from 6 April 2012
• Scheme set to run until 5 April 2017
Assisting SMEs in raising equity investment from private investors
Significant tax benefits to investors
Only applies to companies, not sole traders or forms of partnership
Complex rules and conditions
• At time of share issue
• Up to 2 years prior to share issue
• Up to 3 years post share issue
Advance assurance procedure – importance of full disclosure
30% Income Tax relief
• Regardless of marginal tax rate
• Carry back facility exists
• Must hold shares for 3 years
• Max £1,000,000 investment (or x 2 if carry back)
Capital Gains Tax deferral relief • Deferral of other capital gains (future planning options)
• No Income Tax relief requirement
• Carry back facility exists
Capital Gains Tax exemption on EIS shares • Must hold shares for 3 years
100% Inheritance Tax relief • Must hold shares for 2 years
Loss reliefs • For Income Tax and/or Capital Gains Tax
• New cap on Income Tax reliefs will not apply
50% Income Tax relief
• Regardless of marginal tax rate
• From 2013/14 carry back facility exists
• Must hold shares for 3 years
• Max £100,000 investment
Capital Gains Tax reinvestment relief • Other capital gains exempt from CGT to extent reinvested
• 2012/13 gains only
• Whether investment made in 2012/13 or 2013/14
• Must hold shares for 3 years
Capital Gains Tax exemption on SEIS shares • Must hold shares for 3 years
100% Inheritance Tax relief • Must hold shares for 2 years
Loss reliefs • For Income Tax and/or Capital Gains Tax
• New cap on Income Tax reliefs will not apply
Cannot be an employee of company
• Directors not an ‘employee’ for this purpose, but must meet other qualifying criteria
No more than 30% of share capital, voting or assets on winding up
• Including associates
• ‘associates’ means business partners, trustees, certain relatives (lineal descendants)
No value received
• Purchase of shares
• Certain loan arrangements
• Benefits
No pre-arranged exits
The shares requirements
Trading company not carrying on an ‘excluded activity’
UK ‘permanent establishment’
Company must have:
• less than 250 employees
• Gross assets of less than £15,000,000
Company can raise up to £5,000,000 in 12m period (includes all EIS/ SEIS/VCT/State Aid)
Company must employ money raised within 2 years for qualifying purpose
The shares requirements
Trading company not carrying on an ‘excluded activity’
UK ‘permanent establishment’
Must be carrying on a new qualifying trade Cant have raised money via EIS or VCT before.
Company must have: • less than 25 employees • Gross assets of less than £200,000
Company can raise up to £150,000 under the scheme (less State Aid)
Company must spend money raised within 3 years for qualifying purpose
Raising more than £150,000. Can I use SEIS and EIS?
Company is in a group. Can I use SEIS/EIS?
Company is non UK or operates outside of UK. Can I use EIS/SEIS?
Already issued shares to investor(s). Can I use EIS/SEIS?
An individual has loaned money to my company. Can I use EIS/SEIS?
Company is carrying on an ‘excluded activity’. Can I use EIS/SEIS?
Business Plan
Investment Agreement
Articles of Association
Formalities of issue
Information Memorandum
Offer to the ‘Public’ – Companies Act 2006
Pre-emption procedure – Articles of Association
Board and possibly Shareholder Consent
What type of shares are being offered?
Formalities
Financial Promotions
Relevant exemptions
Current state of affairs
Forward looking statements
Limited participation and control
Investee company
Aggregate investment
Qualification for EIS /SEIS relief
Withdrawal of relief
Maximum of 30% holding (minority holding)
Board representation
SEIS – permitted
EIS – permitted after investment
Can’t be an employee (SEIS and EIS)
Reliance on:
Information Memorandum
Business Plan and Investment Agreement
What is the minimum subscription amount?
What are the plans for debt financing?
Timing of fund raising?
Advance assurance
Investment conditional upon advance assurance
EIS 1 / SEIS 1
EIS 3 / SEIS 3
Investment limits
Company not in difficulties
Spend monies within 2 / 3 years (EIS/SEIS)
Spend monies on permitted business activity
Ensure your percentage holding does not increase (30%)
No forced sale within three years
No return of value to shareholders
The business of the company
Investment, loans and guarantees
Right to receive financial information
Warranties and representations
Representation on and decisions by the Board
Decisions by the Shareholders
Payment of dividends
Classes of share
Issuing new shares
Restrictions on the transfer of shares (voluntary and involuntary)
Founders resigning, selling shares (lock-in)
Non-compete
Minority rights
Expenditure (particularly salaries)
Share schemes
R&D
Payroll - RTI
Pensions – auto-enrolment
EIS and SEIS are government introduced tax incentive schemes
Assisting SMEs in raising equity investment from private investors
Significant tax benefits to investors
Complex rules and conditions – full tax advice is vital
• At time of share issue
• Up to 2 years prior to share issue
• Up to 3 years post share issue
Protecting the business and investor tax reliefs – legal advice is vital
Integrated tax and legal advice offering
Magma is a leading independent firm of Chartered Accountants and Chartered Tax Advisers,
providing a wide range of professional advisory services to owner managed businesses and
private individuals via six integrated service areas: Audit and Assurance, Business Services,
Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth Management.
Extensive experience in advising companies and individuals on EIS and SEIS in various sectors
including retail, engineering, technology, property, manufacturing and media.
Legal Clarity is a firm of solicitors specialising in in corporate and commercial law. Its corporate
team has a wealth of experience advising private investors and companies raising finance -
including investments qualifying for EIS / SEIS relief. One of the firm’s key strengths is the clear
and pragmatic advice it provides to high growth ‘start-ups’.
James Quinn – Director
T: 08456 800 727
M: 07941 554182
W: www.legalclarity.co.uk
David Nash - Partner
T: 01788 539000
M: 07554 017118
W: www.magma-accountants.co.uk
This document has been prepared as a general high level summary of some points of the EIS
and SEIS. It has been written for information purposes, should not be considered to be exhaustive and should not be relied upon or be a substitute for professional advice which should be sought. No liability or responsibility is accepted for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. This document does not constitute taxation, legal, financial or investment advice.