If you have a particular project or goal in mind, you may be wondering how you’ll raise the finance you need. Have you considered the Enterprise Investment Scheme or crowdfunding?
Weighing up the benefits of each is crowdfunding investment specialists Current Capital. Could they be the financial solution you have been looking for?
The benefits of the Enterprise Investment Scheme (EIS)
The government’s Enterprise Investment Scheme (EIS) has been established to help companies gain the investment they need from qualifying investors.
It’s particularly beneficial for smaller trading companies that have a higher risk, as investors will receive a variety of tax reliefs. The EIS provides the following benefits:
• A deferral of EIS Capital Gains Tax for the life of the investment on the amount subscribed.
• 30 per cent 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 can be carried back to the 2016/17 tax year.
• 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.
To put the above into context, if a UK taxpayer was to invest £100,000 in an EIS qualified company, HMRC would grant them a £30,000 tax rebate, assuming their income tax liability has exceeded £30,000 in the current or previous tax year.
The way we invest has changed. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business.
Next, an individual would have to complete the necessary self-certification to become a qualifying investor before receiving a presentation, brochure and application form about the opportunity. Those still interested in the investment would then be expected to sign an Investment Memorandum, and then perform their own due diligence and negotiate terms of their investment. Even then the process wasn’t complete, as significant ‘know your client’ procedures would need completing before funds were transferred to a lawyer’s account.
This lengthy process meant that investing took time, often with additional costs for investors as they had to arrange their own due diligence and cover any associated costs.
Fortunately, crowdfunding has made the entire process much more efficient. It is a way to raise money, awareness and support for a project. Crowdfunding sees companies — especially small businesses which had previously been turned down by High Street banks — being able to appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for a share in the business.
The benefits of crowdfunding include:
1. 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.
2. 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 if a business.
3. 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.
4. 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.