How Does The EIS Shares Scheme Work?

Shares Scheme

In the fields of investments and business, the scheme for EIS shares an interesting and effective investment plan. To be specific, it is a way in which those interested in investing in smaller ventures can do so. Consequently, they would receive some benefits too, thereby profiting both parties involved.

Furthermore, when your company takes the assistance of this scheme, it increases your investor pool too. Due to the possible tax relief, investors feel less wary of investing in the companies that use this plan. This would ultimately improve your company’s chances to hike funds as well.

Benefits of the EIS Shares Scheme

Certainly, EIS shares provide a lot of benefits, both from the perspective of the investor and the smaller companies. This scheme offers the former an amount of leniency in their annual federal tax-paying by reducing the amount. To elaborate, whatever amount the investor invests, 30% of it is considered as credit.

This allows for the increase of capital for the invested company, and the investors can purchase their shares. Plus, when the individual wants to sell their shares, they do not have to pay the additional tax for capital gains. This is a huge advantage for them and enables more investors to put in credit. Usually, a taxpayer can opt for a total tax liability of £300,000 annually, as per their preference.

How to qualify

There are certain rules for qualification for both the ones investing and the companies that are investing in EIS shares. This is to ensure proper and misuse-free usage of the scheme. They are as follows.

l  One of the factors where EIS does not work is when the two parties opt for investment with only the tax relief in mind. To specify, both the investor and the company should invest in each other. Plus, the controlling members of the company like directors, partners, etc., should not receive the tax relief personally.

l  Investors need to keep hold of their ordinary shares for at least 3 years in the company. And they should pay for the entire amount of their share on receiving the deal.

l  Another perspective that the EIS shares do not allow is the angel investors. This term refers to family members or friends of the entrepreneur of the business. This is because the investors are personally invested in the person in charge and not the entire company. Therefore, EIS considers this as unreliable.

Overall, the EIS shares scheme has beneficial components for both sides of the investment. As long as everything occurs as per the rules, both parties can grow their profit margin liberally.