Table of Contents
In Short
- EIS advance assurance helps secure investor confidence by confirming eligibility for tax relief under the Enterprise Investment Scheme.
- Eligibility requires your company to meet specific criteria, such as engaging in qualifying trades.
- Applying for advance assurance involves providing detailed information to HMRC, which can boost your appeal to investors.
Tips for Businesses
Before applying for EIS advance assurance, ensure your business meets the necessary criteria. Seek professional advice to maximise your chances of success and avoid potential delays or rejections from HMRC.
For UK-based startups seeking investment, the Enterprise Investment Scheme (EIS) offers significant benefits for investors. One of the critical steps in accessing the scheme is securing advance assurance from HMRC, which can help enhance your startup’s appeal to potential investors. This article will explain EIS advance assurance and provide a step-by-step guide to help you secure it.
What is the Enterprise Investment Scheme?
The Enterprise Investment Scheme (EIS) is a government initiative designed to encourage investments in smaller, higher-risk companies by offering tax relief to investors. The EIS provides generous tax incentives, making startups and growth-focused companies more attractive for individuals to invest in.
Through the EIS, investors can benefit from the following:
- claiming income tax relief on 30% of their annual investments in your company up to £1 million (this threshold increases to £2 million if your company is knowledge-intensive);
- capital gains tax relief on gains from EIS shares held for at least three years; and
- loss relief if the investment fails.
The scheme can help you raise capital to grow your business, enabling you to raise up to £5 million in a year and a maximum of £12 million across its lifetime.
What is EIS Advance Assurance?
EIS advance assurance is confirmation from HMRC that your business will likely qualify for EIS once it issues shares to investors. Advance assurance is not a guarantee, but it gives investors confidence that their investment in your startup will be eligible for the tax benefits available under the scheme.
If you receive advance assurance, HMRC will send you a letter stipulating that your company and the share issue meet the conditions for the EIS scheme.
This guide aims to introduce founders to the UK startup market. It provides extensive insights and practical advice on essential steps for launching your startup in the UK.
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How to Get EIS Advance Assurance
1. Ensure the Scheme Is Right For Your Business
Besides the EIS, two other government-backed venture capital schemes, including the Seed Enterprise Investment Scheme (SEIS), are available. Before pursuing advance assurance for your startup, ensure the EIS scheme is right for your business and meets the necessary conditions.
For example, you must ensure that your company:
- falls within one of the qualifying trades eligible for the scheme;
- has a permanent establishment in the UK; and
- is not trading on a stock exchange.
2. Seek Professional Advice
While it is possible to apply for EIS advance assurance yourself, many startups choose to work with legal and tax advisors during this process. Consulting experts experienced in investment schemes can help to increase the likelihood of approval. They can help you identify potential pitfalls in the application process, particularly around EIS eligibility criteria and qualifying activities.
3. Apply Online to HMRC
Once you determine that your company is eligible and have sought the necessary advice, the next step is to submit your EIS advance assurance application to HMRC. You will submit your application online and will need to include details such as:
- basic company information;
- how you meet the risk to capital condition;
- details of potential investors; and
- how you will use the money to grow and develop your company.
You must ensure you present this information accurately, as misrepresentations or inaccuracies could lead to delays or rejection.
4. Get Assurance from HMRC
After you submit your application, HMRC will review it to determine whether your business will likely qualify for the EIS. If successful, HMRC will issue advance assurance, which you can present to potential investors.
While advance assurance is a positive sign, it is essential to remember that it does not guarantee your investors will benefit from the scheme’s tax reliefs. Final qualification for EIS will depend on your company’s ongoing compliance with the scheme’s requirements. Continually consulting with legal and financial advisors throughout the investment process can help ensure your company meets all the necessary criteria.
Key Takeaways
Securing EIS advance assurance is vital for startups looking to attract investors under the Enterprise Investment Scheme. It can make your company more attractive to potential investors as the scheme can enable them to benefit from significant tax reliefs. Ensuring your company meets HMRC’s eligibility criteria will increase your chances of obtaining advance assurance.
You must follow the scheme’s rules throughout the investment period. Not doing so can result in HMRC withholding or withdrawing tax reliefs from your investors and potential legal disputes.
If you require legal advice about obtaining EIS advance assurance, our experienced startup lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
The Enterprise Investment Scheme (EIS) is a government initiative offering investors tax relief and encouraging investments in smaller, higher-risk companies.
EIS advance assurance is confirmation from HMRC that your business will likely qualify for EIS once it issues shares to investors. It is not a guarantee, but it gives investors confidence that their investment in your startup will be eligible for the tax benefits available under the EIS.
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