If you are looking to raise serious money to take your business to the next level, there is a scheme in the United Kingdom available from the UK government that is designed to help you raise the capital you need. The scheme is called the Enterprise Investments Scheme and is open to UK-based businesses and it allows investors to get income tax relief when they make EIS investments into qualifying companies. Another benefit the scheme offers as an investment opportunity is that the UK taxpayers can get tax benefits that can carry back to the previous tax year.
EIS-qualifying companies can raise up to £5 million each year, and a maximum of £12 million over the company’s lifetime. The scheme works by giving income tax relief from HMRC to the investors who buy new shares in your firm (although not tax-free, the tax relief is significant). It should be noted that this EIS cash includes all the other amounts received to a business from other venture capital trusts (VCT and schemes).
If your business fails to follow the EIS scheme rules, then your investors may not be able to keep their EIS tax relief relating to their shares. For example, your business must not have listed on the stock exchange, nor can it be run or owned by another company. It also needs to be based in the UK for qualifying status. Another rule of the EIS scheme is that the company needs to have under 250 employees. Failure to follow these rules means that your investors will face an income tax liability and issues with their capital gains tax (CGT) exemption on their EIS share issue.
It should be noted that there are some restrictions on what the investment money that has been raised can be spent on and when the trading companies should have spent it by. These restrictions are called qualifying trades and in simple terms relate to areas such as growth, research, and development. There are exceptions and there is a long list of non-qualifying trades that you should be aware of. The investment also needs to be spent within 2 years of the investment, or from the launch of the business.
For early-stage start-up businesses and small companies then the EIS fund might not be the most appropriate way to raise money for your business. The alternative Seed Enterprise Investment Scheme (SEIS) may be more beneficial for those smaller companies that are looking to raise less capital.
Not all companies in the UK may qualify for the EIS funding scheme, so they will need to find other investment options. Larger, more established organizations can potentially go to banks, financial institutions, or raise cash from venture capital schemes. However, for a business that is looking for an alternative approach then angel investment might be the answer.
Angel investment is a form of private investment that provides money for your business or start-up. In return for this potentially high-risk investment, investors will typically require some equity from the business they are investing in.
The Angel Investment Network is a global portal that connects both investors with business start-up owners and entrepreneurs. Investors looking to make angel investments into a business idea or start-up can find a company using our network.
Investors should note that start-ups are a higher risk investment so due diligence should be carried out prior to making any investment.
AIN helps investors and entrepreneurs build lasting and profitable relationships to build better businesses and brighter futures.