As a result, an investee company must intend to grow and develop its trade long term and there must be a ‘significant risk’ of a capital loss, i.e. it is a genuine business with the intention to grow and not a constructed vehicle seeking to limit investor risk. ‘Significant risk’ is not specifically defined and is reviewed on a case by case basis.

HMRC particularly references in relation to the risk to capital condition:

• Sources of income
• Assets
• Structure
• Use of subcontractors
• Marketing of the investment opportunity
• Relationship with other companies

HMRC (in its internal guidance VCM8550) indicates that it will carry out post-investment checks on companies to see if the risk to Capital condition was met, as well as reviewing if the money raised has been used in accordance with the information provided in their compliance statement.

Following these checks, HMRC is able to withdraw relief if information provided to them was misleading or incomplete. HMRC confirms that a company cannot rely on advance assurance, or authorisation to issue compliance certificates, if full facts relating to the company’s eligibility are withheld from HMRC at the time of investment.

Since their introduction in 1994, EIS investments have grown in popularity with funds raised ensuring an overall upward trend of investment volumes. According to latest figures provided by HM Revenue & Customs (HMRC), up to the end of the 2021/22 tax year over £25 billion of funds have been raised. HMRC data for the 2021/22 tax year shows that 4,480 companies raised a total of £2.3 billion via EIS.

In 2012, the UK Government launched the Seed Enterprise Investment Scheme which offered further tax reliefs for those investing in very early-stage companies. In the 2021/22 tax year, 2,270 companies received investment through the Seed Enterprise Investment Scheme (SEIS) and £205 million of funds were raised.

SINGLE COMPANY EIS/SEIS

It is possible to invest directly in to EIS/SEIS qualifying single companies. However, any investment in to a single company lacks diversification and could represent additional risk.

As propositions are in unquoted shares, there is not usually a secondary market (where investors buy and sell securities they already own – what most people typically think of as a ‘stock market’) to sell shares unless the company itself is in a position to buy back the shares.

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EIS: The Basics – On Demand

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If you’ve never recommended an EIS before, we suggest you start with episode 1.

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EIS: Advanced – On Demand

This is recommended for advisers who have completed the EIS—The Basics course, who already recommend EIS, or who are confident in tax-efficient investments.

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IMPORTANT: The views expressed in these webinars are the views of the individual and not necessarily of Deepbridge Capital LLP. Figures quoted by the presenter and/or guest may be approximations. The content of these videos should not be construed as financial advice. This video is a real-time financial promotion and, as a result, has not been approved as a financial promotion for the purposes of Section 21 of the Financial Services and Markets Act 2000.

RISK WARNING: Any decision to invest should be made only on the basis of the relevant documentation for the investment available in the accompanying company profile. Investments in unquoted companies carry high risks. Capital invested will be at risk and you could lose all of your investment. No established market exists for the trading of shares in private companies, making it difficult to sell shares.

Tax treatment depends on the individual circumstances of each investor and may be subject to change in future. The availability of tax reliefs depends on the Company invested in maintaining its qualifying status. Past performance is not a reliable indicator of future performance.

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