EIS guide

Introduction This guide is designed as a practical resource for those interested in using the Enterprise Investment Scheme (EIS). It offers impartial, common-sense assistance outlining the nuts and bolts of the technical, planning and legislative aspects of EIS, as well as true to life case studies. We cover the current rules, including updates on recent changes, and give clarity on when and how EIS can be helpful. There are also useful tips on how to assess EIS offers, providers and client suitability considerations to help advisers make the best use of the EIS tax reliefs. The key focus of this guide is to provide advisers with a broad knowledge of the day to day fundamentals of using EIS. However, for greater detail of opinions, forecasts and research on the market, our regular EIS Industry Report is the place to go. It also includes market analysis, with current key metrics and provider and adviser discussions. This insightful resource is available free of charge from Intelligent Partnership. Learning Objectives After reading this guide, advisers will be able to: • Apply the main rules and practicalities that govern the EIS reliefs available. • Explain the main risks associated with EIS investments. • Define the key aspects that need to be taken into account when considering client suitability for an EIS investment. • Conduct discussions for claiming EIS tax reliefs. • Evaluate the main considerations for an EIS investment and investment provider. • Access planning examples that can apply to real-life situations. • Ascertain the circumstances in which EIS reliefs can be withdrawn. A publication like this is rarely the product of one organisation’s efforts: to ensure that it is up to date, comprehensive, accurate and captures all of the key issues requires a wider input. We’ve had plenty of help producing this Guide and would like to thank David Adams, Roger Blears, Liz Brion, Mark Brownridge and Tom Wilde, who have contributed their thoughts to this Guide. Their input is invaluable, but needless to say, any errors or omissions are ours. We would also like to thank our partners: Deepbridge Capital, GrowthInvest, Seneca Partners, Jenson Funding Partners and Vala Capital. It would not be possible to produce educational material like this without their generous support and contribution towards the production, printing and distribution of the guide. Acknowledgements MARK BROWNRIDGE DIRECTOR GENERAL, ENTERPRISE INVESTMENT SCHEME ASSOCIATION Opening Statement 2019 marks the 25th anniversary of the Enterprise Investment Scheme. In that time, EIS has helped over 29,770 companies start and scale up their business and provided over £20 billion of equity funding. It’s a phenomenal success story and has helped companies across a wide range of different sectors and industries to achieve their goals and ambitions. It has continued to support the next generation of entrepreneurs, innovators and disruptors and a common thread amongst those that have received EIS investment, is that it was vital to their success, particularly in the early stages. Alex Cheatle, CEO and co-founder of Ten Lifestyle Group, an AIM listed lifestyle management business, has gone so far as to say: “We probably would not have a business today without EIS.” Alex was able to provide his EIS investors with a 15x initial investment return but of course not all of those that have so far received EIS funding have been able to match that. It’s the unfortunate nature of a start-up that failure rates are high and investors lose money. A tax incentive scheme like EIS focuses investors on entrepreneurial firms based on a number of criteria, such as age and size, but no investors can guarantee that every one is a winner. Nevertheless, while the government doesn’t undertake statistical analyses of the impact of the effectiveness of tax incentive schemes, but anecdotally for every £1 invested via tax efficient schemes, the government gets back £4. It’s clear that in a post-Brexit environment, the government wishes to reiterate that the UK is open for business. In effect, we have come full circle. Further in fact. See these comments made by Geoffrey Howe MP, Chancellor of the Exchequer in 1983, in respect of the introduction of EIS’s forebear: “By concentrating help on those companies which do not have ready access to outside capital, the scheme will assist many more small or medium companies to realise their undoubted potential for growth.” So, 25 years on it’s really a case of back to the future for EIS. In recent years, the government has changed the EIS rules to ensure every pound invested in the scheme is a pound at risk. The end result has meant the focus is firmly on three areas: growth, innovation and technology. The portents are exciting: dealflow in the UK in these areas looks particularly strong as, increasingly, does the prevalence of exits; EIS remains one of the most tax efficient investments available and small businesses still require and respect EIS funding. EIS has been and will continue to be a British success story to be proud of.