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Houdini's Enterprising Brexit

26th Nov 2018
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ProActivTax helps accountants and advisers across the UK be much more successful with all aspects...
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We are either lurching from one crisis to another or exploring new frontiers boldly going where no Brit has gone before. We are either staring into the abyss or escaping from the EU shackles forging new friendships along the way. Whichever of those opposing views you hang your hat on I think it is fair to say that UK firms at present are a mixed bag of uncertainty, optimism and fear as they strive to grow and develop their businesses.

Paranoia?

Interesting feedback from some ProActivTax members is that certain clients are fearful of attracting inward investment post Brexit. Whether this is a paranoid view or one of substance is a subjective argument but one which is undoubtedly held by some within the business community.

Maybe this is the time, if they have not already done so, for companies to look to see if they qualify for Enterprise Investment Scheme (EIS) status. With the income tax, capital gains tax and inheritance tax breaks open to would be investors it would make investing in your client’s company a more attractive proposition.

Qualifying conditions

Here goes with my whistle-stop reminder of what the relevant conditions are bearing in mind that there are some variations depending upon whether the company is a normal trading company or Knowledge Intensive Company (KIC):  

a) It has to be an unquoted trading company with a permanent establishment in the UK.

b) It is carrying on or about to carry on a qualifying trade (examples of excluded trades are property development, hotels, farming, nursing homes).

c) The company must be independent.

d) a) to c) above must be fulfilled for at least 3 years following the issuing of the EIS shares.

e) The company (plus any qualifying subsidiaries) must not have gross assets worth more than £15 million before the shares are issued and not more than £16 million of assets immediately afterwards.

f) The company must have less than 250 full time equivalent employees at the time the shares are issued (500 in the case of KIC).

g) Companies can receive investment as long as it’s within 7 years (10 years KIC) of the first commercial sale.

h) If not within the period of g) above the company needs to show that the monies raised are to enter into a new product or geographic market and the investment will represent at least 50% of the company’s average annual turnover for the last 5 years.

i) The money must be spent within 2 years of the investment or when the company has started to trade whichever is the later.

j) There has to be risk to capital regarding the investment.

k) It must be for a genuine commercial reason and no tax avoidance motive.

l) The shares must be full risk ordinary shares paid up in full when issued.

Phew!!

What’s the benefit to the company?

1) With EIS qualifying status the company should be more attractive to a wider investor base.

2) Up to £12 million can be raised through this investment vehicle, £20 million if a KIC.

3) Assuming the shares have not been issued the company can go for advanced assurance clearance from HMRC.

The nuances and subtleties of the legislation are not fully covered off here and it is fair to say the complexities of it can prove a barrier to both accountants and their clients. However, ProActivTax members can call upon our specialists to take their client through the EIS process if it is the appropriate course of action.

Footnote

There was an acknowledgement in the Budget notes that the Government intend to reform the EIS rules for approved funds as regards investments in Knowledge Intensive Companies. The legislation will follow a further consultation in 2019 to come into force by April 2020.

ProActivTax help accountants across the UK

ProActivTax was set up to help accountants around the UK to develop their tax offering to their existing client base and to build up their tax profile within their local community and beyond.

All ProActivTax members have access to our tax specialists who cover the full range of taxes within the safe confines of the tax legislation.

We also do this through tax resources (such as PAT Potentials), tax marketing, tax specialists, tax training/webinars/seminar programmes and us.

If you would like to find out more please click here to access my online diary or simply drop me an email with some provisional dates and I’ll set up a conference call.

Paul Flynn

Email: [email protected]

Tele: 01246 488 200

Mobile: 07903 799091

Turning Tax Technical issues into commercial reality

ProActivTax Ltd (09540555) 7 Midland Way, Barlborough. Derbyshire. S43 4XA

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