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Ongoing risks for venture capital reliefs such as EIS

For high growth businesses that have benefitted from investment under venture capital schemes such as SEIS and EIS many companies focus on complying with the rules at the time of receiving an investment and overlook the ongoing compliance requirements. The regulations can be very complex and our article SEIS and EIS Pitfalls focusses on considerations at the time of investment and below we have set out some key principles and red flags for companies who have or are considering benefiting from investment under venture capital schemes. 

Within two years, an EIS company must spend all EIS money on a qualifying purpose (excluding ‘insignificant’ amounts, although ‘insignificant’ is not defined). The time restriction is for two years from the share issue, or if the company is preparing to trade at the time of the issue, within two years of the trade commencing. For this reason, many companies will keep EIS money in a separate account to make it easier to demonstrate how this requirement has been met.

Companies accessing the benefits of venture capital schemes need to comply with rules up to the termination date, which will be the later of the the anniversary of the share issue date or, if a company was not trading or carrying on research and development at the date of the share issue, three years after the trade commenced. The termination date is normally shown on forms EIS2 and EIS3.

Red flags for conditions that need to be met until the termination date include the following:

While there is no need for an annual EIS audit, companies are required to notify HMRC (and investors) within 60 days of a breach of a condition and investors are also required to notify HMRC within 60 days of being notified of the breach.

How we can help: We work with scale up and venture stage businesses providing tax, corporate finance and scale up support, applying our professional and commercial experience. We provide clear and practical solutions from advisers who are experienced entrepreneurs, board advisers and professionals. If you need help with your scale up tax planning or any other aspect of successfully scaling your business, do contact us for a free and confidential initial consultation.

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