I think that all business owners are interested in their own tax affairs, however, if they want to attract external financing, they should also consider the tax position of any investors and offer them a better investment opportunity ...
There are two Government schemes that offer tax reliefs for people who want to invest in your business. These are called the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS).
For a small business, an investor will get 50% Income Tax relief, and if they hold your shares for longer than three years, any capital gains they've made will be tax-free!
When it comes to EIS for larger companies, investors can get a tax rebate of 30%. I feel this is still rather generous, and both schemes offer attractive tax relief for investors.
If you want to attract investment for your business, then I'd recommend making what's called an Advance Assurance Application to HMRC to see if your business qualifies for EIS tax relief. If you do qualify, once individuals start investing in your business, use the EIS1 compliance statement to share details of these investments.
Should you not have done an Advance Assurance when submitting the EIS1 certain other documents must also be submitted, including:
- your business plan and financial forecasts
- a copy of your latest accounts if available
- which companies will use the investments (if part of a group)
- details of all trading and activities to be carried out
And this can cause you a lot of difficulties as you may not have all these documents available. It really is easier to sort out your Advance Assurance with HMRC first.
As the economy reopens following the pandemic, relatively new businesses looking for investment can use tax-relief schemes like SEIS and EIS to get a jump on their competitors, and I'd recommend looking into it if you need to raise funds.
If you feel inspired to find out more about anything I've said here, do call me on 01908 774320 or leave a comment below and I'll be in touch as soon as I can.