How to Reap From Investing in EIS and Crowdfunding
Both the Enterprise Investment Scheme and crowdfunding can be effective in helping you finance a business project. However, few realise the value these initiatives can bring. Investment opportunity specialist, Current Capital, explains the benefits that each offers.
Enterprise Investment Scheme (EIS)
The government’s Enterprise Investment Scheme (EIS) has been established to help companies gain investments from qualifying investors.
There are many benefits of the scheme, especially for smaller companies with a higher level of risk as they are more likely to attract investors due to the associated tax reliefs on offer. More benefits include:
A deferral of EIS Capital Gains Tax for the life of the investment on the amount subscribed.
30% EIS income tax relief on the amount subscribed, which can be up to a maximum investment of £1 million in the 2017/18 tax year, and/or £1 million which is carried back to the 2016/17 tax year for a minimum of three years.
100% inheritance tax relief after two years, so long as the investment is held at the time of death.
To put this in practice, a UK taxpayer could invest £100,000 into a qualifying company. They will receive a £30,000 tax rebate from HMRC, so long as their income tax liability has exceeded £30,000 in the previous tax year.
In the past, learning about financial investment opportunities depended on accountants, financial advisors and simple word of mouth.
Once a business was aware of the opportunity, an often lengthy and complex process would begin. From gaining the necessary self-certification to becoming a qualifying investor, receiving the presentation, brochure and application form about the opportunity and signing the Investment Memorandum, performing their own due diligence and negotiating the terms of their investment, there was multiple stages that investors had to navigate.
The process was slow and investors had to cover their own due diligence and associated costs. Fortunately, crowdfunding has made the entire process much more efficient.
Crowdfunding enables businesses of all sizes—including smaller companies who may have been denied funding from traditional means—to appeal directly to small investors (including members of the public). The idea is they will invest money in an idea in return for a share in the business.
Crowdfunding benefits include:
- You receive advocates who will support both a business and their idea, becoming part of the journey and making for appealing ambassadors when the project develops in the future.
- Additional funding can be unlocked, such as grants, if a charity or community group or investors, loans or a pre-cursor to an equity crowdfunding campaign of a business.
- While creating and launching a project via a crowdfunding platform, those with the idea will need to think about how best to market the idea — developing their marketing skills in the process.
- Validation is received by the fact that small investors and members of the public are on board with an idea and are already paying or contributing in order to bring it to market.