If you are looking to raise finance for a project within your business, you shouldn’t underestimate the value that both the Enterprise Investment Scheme and crowdfunding can have as you work towards your goals. Current Capital, which guides individuals through their investment journeys, explains the benefit of each initiative:
The Enterprise Investment Scheme
Through the Enterprise Investment Scheme — EIS for short — the Government is encouraging companies to grow and attract investment from qualifying investors.
Set up in a way that helps smaller, higher-risk trading companies to raise finance by offering a variety of tax reliefs to investors who buy new shares in the companies involved, 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 2016/17 tax year and/or £1 million which is carried back to the 2015/16 tax year).
• 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.
Taking the above into account, the EIS means that if a taxpayer in the UK was to invest £100,000 into a qualifying company, then 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.
This is just an introduction to the EIS. Much more information about the initiative can be found on the GOV.UK site, including details about the various tax reliefs available, how tax relief can be claimed, times when tax relief can be reduced or withdrawn and how a company can qualify for the EIS.
Crowdfunding
Picture the scenario — one that you are likely to have experienced if you’ve been in the business world for a few years. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business. From there, necessary self certification would need to be completed to become a qualifying investor, before they were provided with 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.
As you can imagine, this was a slow process and required investors to arrange for their own due diligence and cover any associated costs. Fortunately, crowdfunding has made the entire process much more efficient.
A way to raise money, awareness and support for a project alike, crowdfunding sees companies — especially small business 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.
There are many benefits to seeking out crowdfunding, including:
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.