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Tax change creates surge of interest in EIS funding

February 26, 2013

The number of businesses seeking funding via the Enterprise Investment Scheme has jumped by almost 50% over the past year. Experts believe the number will climb further due to the recent relaxation of the EIS eligibility rules.

More firms seeking HMRC pre-approval for EIS funding

Rockpool Investments, a private equity firm, says that the number of business who applied for HMRC pre-approval to seek funding via the EIS rose by 47% between the 2010/11 and 2011/12 tax years.

Although seeking pre-approval from the tax authorities isn’t mandatory for firms seeking EIS funding, a positive response will help prospective investors establish what tax reliefs they could benefit from under the EIS rules.

The Enterprise Investment Scheme was established in 1994 to provide investors in unquoted companies to with a series of tax reliefs, including 30% initial income tax relief, no capital gains on any profits generated by the investment, and the ability to roll-over capital gains from other products into qualifying EIS investments.

The EIS rules were relaxed from April 2012 to encourage further investment, including a doubling of the individual investment limit to £1m, an increase in the total funds an individual can invest in EIS behicles, and an increase in the turnover and personnel thresholds to expand the number of firms who can seek funding via the EIS.

Massive increase in EIS interest

Gary Robins, Partner at the investment firm, says that these recent changes are likely to result in a dramatic uptake of investments during the current tax year (2012/13):

“The new rules broaden the appeal of EIS investment, as bigger companies, which are often considered more stable, are now eligible.  This is likely to encourage more investors to use the scheme.

“Now is a great time to invest in SMEs. Businesses that have held their own in the recent turbulent economy are now well placed to grow and deliver strong returns.”