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How the UK Government’s Enterprise Investment Scheme could help your startup

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As a startup or small business, you will know how difficult it can be to secure funding to help your venture expand.

There is a scheme, set up by the UK Government that could prove to be useful.

What is the Enterprise Investment Scheme (EIS)?

The scheme was set up to encourage wealthy business people to invest money in small businesses which otherwise would have been seen as risky.

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For entrepreneurs, this is fabulous news as not only do they secure extra funding and investment but also people who do invest attract tax breaks.

How EIS works

In exchange for investing in small businesses, investors receive a number of perks and incentives.

For example, investors can benefit from income tax relief proportional to the shares they purchase through the scheme.

If they do make a loss when they sell their shares, they can claim loss relief that further cuts their tax bill.

Does EIS suit your business?

The idea behind EIS is that small, startup companies are targeted in their development stage.

This may mean that the business has low staffing levels and minimal assets.

Backed by Government, in the 2011 budget the amount of tax relief for investors was increased from 20% to 30%.

Supporting small businesses in the early phase of development can not only lower the failure rate of startups but also boost the economy in later years with a strong business sector.

Is the scheme working?

It appears so.

Surveys and research carried out on the scheme, businesses involved and investors show some encouraging signs.

Investment is high and small businesses are benefitting from this investment.

Under the terms of EIS, a startup or small business can receive up to £500,000 from a single investor in one tax year, with annual sum of £2m across the financial year from two or more investors.

However, as a small business you need to be aware that the level of investment varies from one sector to another; high tech companies for example, received the lion’s share of investment but construction firms were near the bottom of the table.

Getting involved in EIS

The Small Companies Enterprise Centre (SCEC) runs the scheme.

You will need to complete various forms, returning completed applications to HMRC.

From this, HMRC will decide if you qualify for the scheme and how to proceed with your application.

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