EIS guide

35 CLAIMING THE TAX RELIEFS Claiming the tax reliefs The investee company must (often assisted by an EIS fund manager) obtain tax certificates to enable investors to claim the associated tax reliefs; and EIS3 forms for each investee company in respect of each investor. For ‘approved’ EIS funds, the manager applies for a single EIS5 form in respect of an investor’s investment in the fund. HMRC’s Venture Capital Relief Team (VCRT) is responsible for administering the EIS approvals process. Process for investee companies EIS2 Assuming the VCRT are satisfied with the EIS1 and any accompanying information, they will issue form EIS2 to the investee company in respect of the share issue in question, informing them that they authorise the company to issue EIS3 forms to the investors listed on the EIS1. EIS1 • After a minimum of four months’ trading (immediately if the shares were issued when the company had already been trading for at least four months), the investee company can complete and submit a form EIS1 to the VCRT in respect of the share issue. • The EIS1 lists details of the share issue, the investors intending to claim EIS relief and details about the company’s trade and funding. • The investee company has to complete this form every time it issues EIS-qualifying shares. • The form must be submitted within two years of the end of the tax year in which the shares were issued or (if later) within two years from the date the company commenced trading. • The VCRT will assess the EIS1 claim and usually responds within 4-8 weeks, depending on whether the company had advance assurance specific to the issue of shares. • If the company did not have prior EIS advance assurance, more information is likely to be required by the VCRT in order to process the EIS1 (and this can sometimes delay the process). EIS3 • The VCRT send the company a blank EIS3 for each EIS investor listed on the EIS1. • The investee company then completes the blank EIS3 form for each investor (with details of their name, address, details of the shares issued, the date they were issued and the relevant ‘termination date’ – the end of the 3-year holding period). • The EIS3 form enables investors to claim the tax reliefs, so it is an important document that must be kept safe. The EIS3 also contains any information about restrictions on the relief because of "value received". Process for investors EIS3 If the investor is ‘carrying back’ the investment to the prior tax year (for which they have already completed their Self Assessment Tax Return - or if they are otherwise not required to complete a Self Assessment Tax Return), they can make the claim by completing the relevant boxes on pages 3 and 4 of the EIS3 form and returning it to HMRC. Investors cannot claim EIS tax relief or defer payment of tax due because they are expecting to receive an EIS3 form. This applies to both income tax and CGT, so, if an investor was looking to reinvest a capital gain in EIS-qualifying shares in order to defer CGT, they may still have to pay the CGT liability until they receive form EIS3 and their claim is processed. Finally, what should be clear from the description of the steps involved earlier is that the whole process can sometimes be quite protracted, especially if the investee company takes two years to submit the form EIS1 that starts the process and where an advance assurance application hasn’t been made to HMRC in advance of a share issue. This should be taken into consideration when managing a client’s expectations and incorporating any tax reliefs into financial plans. CLAIMING THE RELIEFS – EIS FUNDS An EIS fund may have obtained ‘approved EIS fund’ status from HMRC. Approved EIS funds have a number of criteria. They include that 90% of the fund must be invested within 12 months of the fund closing and the investments must be allocated between investors in proportion to the amounts they invested. If a fund is an approved EIS fund, instead of an investor being issued individual EIS3 forms for each of the individual companies they are invested in, investors receive a single EIS5 form from the fund manager. The EIS5 covers all of the investments made on their behalf. The relevant date for income tax relief purposes is the date the fund closed, rather than the individual dates the underlying shares were purchased. Option 1 Option 2 Self assessment Alternatively, the claim can be made on an investor’s Self Assessment Tax Return for the tax year in which the investment was made. • The investor should make the claim on the ‘Additional Information’ pages of the Tax Return, including details of the investment in the ’additional information’ box. Details of how to do this are included on HMRC’s Helpsheet 341 (Enterprise Investment Scheme – income tax relief) and also the ‘additional information notes’. • Employed investors can request a change to their PAYE tax code for the year of investment in order to reduce the amount of tax collected by their employer. • Investors can also request that their self assessment payments on account are reduced (if appropriate), in order to take account of EIS income tax relief. • However, the appropriate claim still needs to be made on the tax return, once it is received. • EIS Disposal Relief and CGT Deferral Relief claims are always made by completing a Self Assessment Tax Return.