There are two key, and very generous, tax breaks to look for when it comes to investing on Crowdcube. Both of which can be 'carried back' to the previous tax year.
EIS – Enterprise Investment Scheme
The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares in those companies that qualify. For the investor, it’s a tax efficient way to invest in small companies.
The EIS is aimed at the wealthier, sophisticated investors. People can invest up to £1,000,000 in any tax year and receive 30% tax relief. However, they are locked into the scheme for a minimum of three years. EIS seeks to encourage investment into unlisted companies, just like the ones featured here.
SEIS – Seed Enterprise Investment Scheme
SEIS is an incredibly generous derivative of the Enterprise Investment Scheme (EIS) and was introduced in April 2012. Its aim is to encourage seed investment in early stage companies. Investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for any gains on the SEIS shares.
The maximum amount to be raised for each company is £150,000.
What do EIS and SEIS mean?
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to help smaller higher-risk trading companies raise finance by offering a range of tax relief to investors who purchase new shares in those companies. Where a business is listed as 'EIS' or 'SEIS' on Crowdcube, this means that company has received advance assurance from HMRC that tax relief is likely to be available to qualifying investors. However, please note that if the law or the company's circumstances change after the date the advance assurance was given, the company may cease to be eligible.
Where a pitch is marked as 'EIS' or 'SEIS', a copy of the advance assurance will be attached to the pitch. Potential investors should review the advance assurance and take their own tax advice if required.
What do 'EIS Pending' and 'SEIS Pending' mean?
In these instances the business has applied for EIS or SEIS advance assurance, but has yet to receive written confirmation. In these cases, confirmation of whether or not the company has received advance assurance will be given in the cooling off email sent to investors after the pitch closes.
What do 'EIS Partial' and 'SEIS Partial' mean?
In these instances there is EIS or SEIS available for a portion, but not all, of the raise. For example, if a business raising £100,000 might have only £20,000 of that raise as EIS-eligible, then the page will display 'EIS Partial.'
When will I receive my SEIS or EIS certificate?
Under the terms of the scheme, a business is required to meet certain requirements before they can submit SEIS forms to HMRC. Under the current terms, SEIS companies are required to have been trading for a period of four months OR wait until they have spent 70% of the funds raised, before they may submit forms to HMRC. Once these forms have been processed by HMRC, they will be sent out to investors.
Under the terms of the scheme a business is required to meet certain requirements before they can submit EIS forms to HMRC. Under the current terms EIS companies are required to have been trading for a period of four months before they can submit their forms. Once these forms have been processed by HMRC they will be sent out to investors. In total, this process can take around 6 months from the date that you receive your share certificate to completion.
What is a dual SEIS and EIS raise?
Qualifying companies can issue a maximum of £150,000 of SEIS eligible share in their lifetime.
Some companies offer their remaining lifetime allowance of SEIS shares on a first-come-first-served basis to investors. Investors who invest after the remaining SEIS allowance has been exhausted are offered potentially EIS eligible shares. We call this a dual SEIS and EIS raise.
Where a company is offering both SEIS and EIS eligible shares in the same round, this will be marked on that company's pitch page. If you invest in a dual raise, the email you receive after a pitch closes will set out the tax relief potentially available on your investment.
On an SEIS/EIS dual raise, payments for the SEIS eligible shares are collected and the SEIS eligible shares are issued first, before payments are collected and shares are issued for the EIS investments. Other than the different tax treatment, all investments (SEIS and EIS) are made on the same terms.
Company X has issued £50,000 of SEIS shares in the past.
It decides to do a £300,000 raise on Crowdcube. The first £50,000 invested is potentially SEIS eligible. The additional £250,000 invested is potentially EIS eligible.
After a pitch closes, all investors receive an email to review their investment, summarising the tax relief that may be available on their investments.
After the period specified in the email, the first £50,000 of investment is collected. Shares are then issued to these investors.
After shares have been issued to the SEIS investors, the remaining £250,000 of investment is collected. Shares are then issued to these investors.
If an individual investor makes 2 investments in the same pitch, one before and one after the remaining SEIS allowance has been exhausted, they will be treated as separate investments. This means that the funds for the SEIS investment will be collected before the funds for the EIS investment and the investor will receive 2 separate share certificates with 2 different issue dates.
PLEASE NOTE: The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.