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Enterprise Investment Scheme (EIS) FAQs

April 14, 2018 by Guest Post Leave a Comment

What is EIS?

The Enterprise Investment Scheme (EIS) was introduced in 1994 to help smaller, higher-risk unquoted companies raise finance by offering a series of tax reliefs to new investors, thereby helping lessen the amount of investor capital at risk. At its core, EIS is one of the most generous tax relief schemes in existence.

EIS lets you invest up to £1m – now £2m if in knowledge-intensive businesses (see later) – in any tax year and receive 30% tax relief on your initial investment. It offers additional loss relief, while allowing investors to roll over existing capital gains tax and give wealthier investors the chance to delay or even avoid inheritance tax.

How do I claim EIS relief?

If you’ve done your preparation and have access to your EIS3 forms, claiming relief on your taxes is a fairly straightforward process.Go to the section of your tax return titled ‘Additional information’

In box Number 2 on Page 2, you will need to enter the total amount you invested into EIS companies for which you will make a tax relief claim.
Go to Page 4 and in the large box, where it asks ‘Please give any other information in this space’, you will need to enter the information stated in the bullet points below.
You do not need to complete Pages 3 and 4 of the EIS certificate and you do not need to send the EIS certificate to HMRC along with your return. However, as mentioned above, HMRC may request to see it to support your claim so do keep it in a safe place.

The names of the companies you’ve invested into
The amounts, per company, for which you’re claiming relief
The date the shares were issued (often not the day you invested)
The HMRC office authorising the issue of the EIS3 certificate, and their reference (as shown on the certificate)

What happens if an EIS investment fails?

By their nature, EIS investments are risky. Accordingly, as well as giving an exemption from capital gains tax, any loss suffered (net of income tax relief) can be claimed as a capital loss to set against capital gains of the same year, or to be carried forward to set against gains in future years. Alternatively, a generally more attractive choice is to elect for the loss to be set against income of the current or prior year under ITA 2007, section 131. Below is an example.

Initial investment £10,000; company goes bust and nothing received on liquidation.

Please note that the rate at which you receive loss relief depends on the tax band you’re in, i.e. you’ll get 45% of your capital at risk back if you’re in the 45% tax band. Assuming the investor has income taxed at 45%

EIS investment: £10,000

Income tax relief at 30%: £3,000

Net cost to investor: £7,000

Loss relief £7,000 x 45%: £3,150

Cost to the investor after tax: £3,850

How can I obtain EIS certificates?

Once the funding round is successfully completed and shares are issued, the investment platform sends an application to HMRC (referred to as an EIS1) asking to grant investors EIS tax relief. It usually takes HMRC around three months to process this application.
HMRC then sends the company blank EIS3 forms (the certificate that investors receive), which the company typically completes and returns to you, the investor. You can then attach them to your tax return to claim relief if you are eligible to do so.

Please note that the full process of obtaining an EIS certificate for an investment can take a few months.

Can I carry back EIS relief?

Yes. Income tax relief can be claimed in the year of investment, or the previous year. This means that if you have a tax liability for the previous tax year, you can mitigate this by making an EIS investment in the current tax year and carrying it back.

There are complex rules around what type of company qualifies for EIS investment, so you should always check that the company has an ‘advance assurance’ from HMRC.

What is the maximum EIS investment?

The maximum annual investment limit into EIS-eligible companies is £1m, except for ‘knowledge-intensive’ companies, for which this limit is £2m, as outlined in the 2017 Autumn Budget by Chancellor Philip Hammond.

Risk warning: Tax relief depends on an individual’s circumstances and may change in the future. In addition, the availability of tax relief depends on the company invested in maintaining its qualifying status.

10 Top Tips for Entrepreneurs

March 28, 2018 by Guest Post Leave a Comment

Everybody has to start somewhere when it comes to new ideas and ventures. Initially, in our first stages we’re never experts until we research and gain further knowledge of a topic. Starting your own business is just another one of them ideas that requires such practice. As a young apprentice, we’ll look up to mentors who have become established in their trade. If you’ve not quite found that person you can gain valuable advice from, we’ve put together 10 top tips that can help any budding business owner to become successful.

Keep focused on what you know

Allowing yourself to focus on one particular business keeps it easier to manage, and it provides you with the environment to show your expertise and teach others. Plus, if it’s something that you’re passionate about you’re likely to stay motivated in your day to day work.

Be open to what you don’t know

Although you’re the boss, no one’s completely perfect at what they do. Surround yourself with good, knowledgeable people who you can still learn from. Everybody has gained different experiences in their trade and working as a collective can benefit the business. Find good people who have the same interests and goals, and success will follow.

Be sensible with your money

The aim of a business is to raise capital, not run it down to the ground. During your early days as a business owner, you need to make sure you’re investing wisely. Document what your money is being spent on and understand whether the investment you’re making is worthwhile.

Look after number 1

Being a business owner is a hectic lifestyle and not an overnight success. It will be a stressful time so be sure that you’re also looking after yourself too. Eat well and remain active to make sure you don’t burn yourself out.

Be assertive through your actions

The only way you can prove your worth is if you have something to show for it. It’s fair enough to sell your business enthusiastically, but people will be jumping on board because of the idea you’ve sold. Now it’s making sure the idea comes to light.

Learn from the mistakes you make

Mistakes aren’t always a bad thing, it can happen to basically everyone. Just be sure that you learn from the mistakes you make and reflect on how you could have done better. The best entrepreneurs see mistakes as an opportunity to better themself, not knock them back.

Take appropriate risks

No one can predict the future. Unless something is done, we will never know the outcome. Although it’s good to remain cautious, the window of opportunity doesn’t come around often, and if there’s a genuine belief that something good could come from it take the chance.

Appreciate your target market

As a business you should always be looking to improve and become better at what you do. The only way you’ll know whether you’re on the right path is if you communicate with the right people. Listen to customers to know what you’re good at and what you’re not, this way you can continuously progress your work.

Find the right team for the job

It’s hard to make success on your own, and you need to make sure that you build a team capable for the work ahead. A good entrepreneur understands the staff they require and provides the correct opportunity for the right people. In some cases, overseas staff may be an option due to skill shortage. It may require sorting legal issues like a UK Visa, but a boss always knows the right people for the job.

Always have a back up plan

You’re never going to know how the business is going turn out. Always plan ahead for potential disasters and what if’s. If it was to fail, make sure you have something to fall back on

Being successful as an entrepreneur will take time and a lot of effort. Following these simple steps should help to make it a smoother journey and keep you in shape for the excitement ahead.

About the Author

My name is Jennifer Ranking and I’m currently a student and freelance writer. I’m looking to build up my writing portfolio with various topics of interest include Business, Fashion and Women’s Sport. If I’m not writing, you’ll most likely find me reading or in a school as a part-time teaching assistant.

Raising Funds for Your Business – How Can I Do It?

February 23, 2018 by Edward Wade 1 Comment

Creating a successful business is an exciting venture, but requires an enormous amount of hard work. Starting off is never easy and it doesn’t matter how good your idea is, without the funds to get things going the business won’t take off. Cash is king and making sure you have enough to set up and see you through the first few months of trading with a healthy cash flow, is vitally important. If you don’t plan and spend your cash effectively, you could end with an asset-heavy business, but without enough cash flowing through the business.

So, what are some of the best methods of raising cash to get your business started?

Do it yourself

Self-funding is one of the most common means of raising cash to start a business. New owners regularly take the risk, re-mortgage, sell assets or dip into long term savings to make enough money to get their business rolling. Naturally there will be a risk involved, as with anything in business, however, if you plan effectively and strongly believe in your model, the business can be a successful, self-funded start up.

An alternate would be to borrow cash from either friends or family. This can work out great in some cases, as you are borrowing money from a trustworthy reliable source, who you have a naturally positive relationship with. This can help you negotiate suitable repayment terms which suit both parties. If things don’t work out the loss of capital can be devastating to those close to you, who are sometimes relying on you for the results. Naturally sometimes this happens in business, the most important thing is to make friends or family aware of the possible risks and losses.

Loans

A traditional bank loan is perhaps the most well-known form of funding for businesses. Banks are willing to lend money, as long as they can see a future for the business. The bank will assess the potential risks and pitfalls of the business before making a decision on if they will lend. If the business has been trading for a few years but is going through a short-term cash flow trouble, as long as the business plan can work, banks may consider lending.

Applying for a bank loan can be a long stressful procedure, particularly if it is a complex business and requires a lot of work and planning. For new start-ups which are unable to supply previous company accounts, banks will normally require security against your assets, as new start-ups are generally seen as riskier.

Commercial Finance Broker

If you’re not totally sure about the best way to raise cash for the business, a commercial finance broker can help you make the most appropriate decision, when it comes to moving forward. Raising money for a new business can be a very difficult task and sometimes different lenders have different types or repayment terms. A broker could advise you on the best deal and ‘shop around’ for you.

In a similar fashion, if you don’t think borrowing money is the right move forward a broker may be able to help you find a suitable investor or even a partner to raise up capital for the business.

Angel Investors

Getting capital through angel investors is typically quite difficult. Most need a lot of persuading, while one of the hardest parts is just getting sat down in front of them. Angel investors are normally business entrepreneurs who are willing to take risks and put money into new start-ups that they believe in. Sometimes angels form groups or syndicates so that it’s easier to spread the risks of their investment.

Angel investment represents a brilliant opportunity to raise money for the business, however, it can add extra pressure. Angel investors will always be looking to see where they can recoup their investment from if things go wrong. It would also mean that as an owner you might have to give up a certain percentage of the business.

Crowdfunding

If the business is struggling to get any funding externally crowdfunding can be a brilliant way to raise capital for the business. Crowdfunding works on a collective contribution basis where business owners put their ideas on an online platform and invite large numbers of individuals and institutions to invest in the business. Crowdfunding is not an easy option, people have to really believe in the idea and most people like to see that the business already has some money behind it.

There are a few different types of crowdfunding available. Some people invest simply because they believe in the cause, but this is normally in the case of charities or community projects. Small donations are made to some types of businesses, but these are normally met with a small reward from the business. For example, if it was a restaurant they may offer a free meal for two in exchange for a £50 donation.

To more efficiently raise money via crowdfunding requires either debt or equity crowdfunding. The first which is also known as peer-to-peer lending, is where individuals lend money to the business in exchange for financial reward such as interest on the amount borrowed. This can work great for new businesses who may be struggling to get a bank loan

Equity crowdfunding gives investors the opportunity to put money into the business in an exchange for shares. This is a fantastic means of raising money for the business as it can generate a lot of funds from people who believe in your idea. The negative is that you end up giving away shares in the business, but owners can control how much of a stake they give away.

If you have a great product or idea which appeals to a large audience, then you have a great chance of raising money more easily this way. Publicising the idea gives you a great chance of seeing just how popular your business could be. The draw back on the other hand is that without intellectual property protection anyone could copy your idea.

Partnerships

A partnership can offer a great source of funding amongst a range of other benefits. As well as a way to raise funds, a partner can help you with all the day-to-day running of the business. However, naturally owners are likely to clash at some point and for the original business owner it can be difficult to relinquish control. Some owners like to maintain full control and don’t like the idea of having to change their business idea.

For some business owners, relinquishing control is simply not an option. In this scenario trying to find a sleeping partner might be the best option. These tend to be individuals whose involvement with the business is simply providing capital, they don’t take an active role in the management of the business.

Strategic partners aid your business in a different way. If they are in the same sector and run a mutually beneficial business, you can pass on work to one another and make recommendations, effectively giving each other business.

About the Author

Edward Wade: I am a freelance journalist, who studied Business at Sheffield University. Now based in London I produce content online across a variety of different topics.

Expand Your Business Without Overreaching

February 22, 2018 by Guest Post Leave a Comment

Once you’ve established your new business, your next goal is probably to expand and generate positive growth. While this can be an exciting prospect, it’s important to analyze your situation and plan ahead. This can help you avoid committing too many resources, which can sabotage your best efforts.

Look at Projected Sales

One of the first things you want to consider, when deciding whether or not it’s time to expand your business, is to analyze the increased sales you expect to earn. You’ll want to look at a realistic expectation and compare that to the cost of expansion to determine if this is a good time for your business to grow. If you’re expanding to meet a greater customer demand, chances are the expansion will benefit your business. The important point is to make sure the cost of your expansion doesn’t meet or exceed the increased profits you expect to earn.

What Will Expansion Cost You?

There are two main types of costs related to expanding your business. Those one-time costs for new equipment or a larger facility and ongoing operating costs, such as employing a larger staff and covering utilities for that new facility. Look at those one-time costs and compare them against the expected returns to figure out how long, before you can break even on the investment. You’ll want to have a good estimation in advance, concerning when you expect to start making a profit.

Look at Low-Cost Marketing Campaigns

Once you implement an expansion, you’re going to want to advertise your company’s growth to your consumers. Since you’ve already invested significant resources in the expansion, you may want to consider free or low-cost promotional options. This can include using SEO tactics to attract a wider share of online users, updating your website, or launching an email marketing campaign. When compared to other kinds of paid advertising, the email marketing cost is substantially lower, though it often requires outsourcing the project to professional marketers. Once a strategy has been chosen and the campaign has been launched, personnel will still need to monitor its progress and adjust the campaign to maximize performance.

Keep a Tight Leash on Your Credit

As soon as you anticipate needing to expand your business, your next thought should be on how you will finance the expansion. Chances are you’re going to need a business loan, or some similar type of financing assistance. This means lenders will be looking at your personal and business credit, so you should already be making an extra effort to ensure all of your payments are submitted on time. Missing just one deadline could result in a mark against you that could cost you a loan or force you to pay a higher interest rate.

Consider Your Options for Funding the Expansion

While your first thought might be to apply for a new business loan, there are other funding options you might want to consider instead. For instance, crowdfunding has become a very popular method for financing everything from the projects independent artists to established businesses. Each platform has its own set of rules, so you’ll have to research several options to determine which one best suits your needs. By way of an example, some platforms require you to attain your desired goal, or you won’t receive any donations at all. Others will give you what you earn, minus their fee, of course.

If crowdfunding isn’t up your alley, you might also consider angel investors. These are individuals who will invest in your business for a share of the equity you have in the business. The downside here is that the investor then has a stake in how the business is run, so decisions about the business will no longer be solely yours to make.

Certainly, expanding your business can lead to exciting profits and even greater financial growth. However, it also requires a solid business plan and a careful analysis of your financial obligations, compared to the increased profits you expect to earn. In the end, it will be a move based on intuition, but, when you act wisely, you can more accurately ensure a positive result.

About the Author

Dawn Castell is a loving wife and mother of three and an up-and-coming entrepreneur. She has spent the last couple years trying to get her business off the ground. In her journey, from working for a big CPG company and a pretty popular tech company to starting her own business, she has learned a lot about the difficulties of running a business and how to be successful. With all she has learned about business, she has decided she wants to help other businesses avoid the mistakes she has made and help them succeed even when she is still searching for that very thing for herself. First and foremost is her family. Second is her business and helping others with theirs.

4 Things To Know About Start-Up Funding Stages

February 19, 2018 by InnovateUK Leave a Comment

Are you trying to collect together the cash you need for your start-up? It can seem like an almost unmanageable task when tackled incorrectly, regardless of your current position within the funding cycle.

Investment is vital to the longevity of any business and is a fundamental part of both expansion and development. Attracting investors and claiming that all-important funding should always be at the forefront of your efforts.

To assist you in finding start-up funding, we’ve brought together a list of tips to guide you and help make the most of your resources.

If you’re looking for ways to target potential investors, or are just curious as to what’s best for your business, be sure to read on and familiar yourself with the four things you should know about start-up funding.

You’ll Need to Know Your Funding Stage

Where your business sits within the funding cycle is crucial to obtaining investment. It’s something you’ll need to know!

Ask yourself some key questions as to the progress of your start-up thus far. How far along development is your product currently? Are you earning tangible profit from your services? You’ll need to be wary of your position as this will help point you towards the types of funding you should be aiming for.

Demonstrating self-awareness toward your funding stage is essential. Potential backers will be eager to see that you understand and acknowledge the boundaries of your business realistically.

Establish Why You’re Seeking Funding

Each funding stage will have different requirements, needs and ideals, and you’ll need to be familiar with these before you pitch to backers. The level of funding you’ll be asking for will have to be realistic, within your future targets and appropriate.

Demonstrate clear, solid reasons for your requests. Establish where and how the money you receive will benefit your start-up and create a strong pitch that shows off the very best of your company.

Personality and confidence are key!

Researching Target Investors is always a Good Idea

It’s always worth looking into those you’ll be pitching your start-up to.

Make sure you know the general behaviours and risk appetites of investors. They’ll differ at each stage so be sure to familiar yourself with the types of things they’ll be looking for. Being in the loop is important.

The more you know about those you’ll be asking of, the better your approach will be. You can adapt yourself to optimise the chances of success.

Types of investors will also be based upon your business milestones, financial needs and current progress reports, so be certain you’re up to date on all three. Be conscious of the types you’ll be appealing to and that you’re asking for appropriate amounts.

Getting this wrong could seriously affect your outcome.

Timing is Absolutely Essential

Observe and evaluate your company to determine which areas you’re looking to expand and focus on in the future.

Knowing where your efforts need to go, as well as what you need to engage with in order to progress to the next funding stage, will make clear the best time for you to make your pitch to potential backers.

Timing is a significant factor in determining how successful your efforts will be. If you get it right, you’ll avoid coming up short at a later stage when new investors are interested, and you’ll have a sustainable momentum of growth.

In need of some more guidance when it comes to business ventures and all things start-up? Be sure to follow Innovate UK on Twitter and subscribe to our YouTube channel for the latest news, tips and advice.