Because of their size, small businesses do not have access to the same sources of funding that larger businesses do. Institutional investors tend not to be interested in small investments in business that are perceived to be more risky, and banks are generally unwilling to lend to SMEs.
Fortunately, there is a group of tax reliefs, known as the ‘venture capital reliefs’ which are designed to encourage private individuals to invest in SMEs, by providing generous tax reliefs on investments in qualifying companies.
Most business owners will have heard of Venture Capital Trusts (VCTs), which pool invested capital from lots of individual investors across multiple qualifying companies. However there is a comparable relief, the Enterprise Investment Scheme (EIS), which is designed to encourage investment directly into a specific small business.
EIS works by reducing an investor’s exposure to potential losses by giving them immediate tax relief on their investment.
The EIS scheme has an even more generous sibling, the Seed Enterprise Investment Scheme (SEIS) where relief is given at 50%, but SEIS is only available to early-stage start up businesses. In both cases, further tax relief is available if an investment becomes worthless, and if an investment is successful, gains are exempt from capital gains tax.
To raise investment under these schemes, a company must show to HMRC that they qualify for the reliefs. Most small companies will qualify, but some sectors are excluded (mainly banking and finance, and property investment).
We can help you to apply to HMRC for these reliefs, which will then enable you to demonstrate to potential investors that your business qualifies for relief. We can then manage the investment process for you on an ongoing basis, issuing the necessary certificates for investors to claim relief, share certificates, and submitting the necessary documents to Companies House.
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