EIS qualifying companies vary across a wide range of industries. However, industries like real estate, commodities, or shares are not eligible for EIS tax relief. Also, companies with employees of more than 250 and gross assets of more than £15 million are excluded.
In order to qualify for the EIS scheme, investors must hold the shares for at least three years. Individuals with controlling financial interests, such as partners, directors, and employees, are exempted from EIS investment tax relief. The EIS applies to angel investors – individuals who invest in small startups.
There are two ways to invest in an EIS-qualifying company – investors can invest in a single EIS-qualifying company directly or via an EIS fund. Those who choose to invest via a fund have to deal with low risk as the money will be distributed across a portfolio of around 5-10 companies. On the other hand, investing in a single EIS-qualifying company can provide higher returns, but it carries high risks, too, due to a lack of diversification.
Investors can claim tax relief when they complete their annual tax return. They have to share the details of each EIS qualifying investment and submit it to HMRC. Another way to claim tax relief is to fill out the EIS3 claim form and submit it to HMRC.
How to decide which companies to invest in via EIS?
In order to decide what the best investment opportunities in the UK via EIS are, investors need to know the basic rules of EIS, including:
The business must not be listed on any exchange, and its operations must centre around a qualifying trade. While most trades qualify for EIS tax relief, businesses that involve more than 20% of operations of ineligible trades won’t get any tax relief. Intangible trades include farming, nursing home or running a hotel, legal or financial services, and energy generation. In addition, coal and steel production, property development and leasing activities are also ineligible for qualifying for EIS tax relief.
The second thing you need to check before investing in an EIS company is that the company must have a permanent office in the UK. There should not be employees of more than 250, and its gross assets must be less than £15 million.
Any money raised via EIS must be used to expand the business. You can’t purchase shares of another company for trading or build your assets.
While deciding which company to invest in is challenging, you need to be careful when choosing your company. Not only this can help you mitigate your income tax bills but also diversify your portfolio and enable you to get strong returns.
The bottom line
While startup investors deal with various risks associated with a startup company, investing through the EIS tax relief program can significantly mitigate the risks of losing your capital. If you are looking for investors who can invest in your company, you can get in touch with Britbots. For more information, visit the website here: https://www.britbots.com.