The Similarities
The Objective
The Government are clear with the objective of EIS and VCTs; to fund early-stage companies with growth potential. In return for the generous tax reliefs provided to investors by the Government, the companies EIS and VCT support may provide jobs, pay tax, and boost the UK economy.
To receive either EIS or VCT funding, investee companies must abide by certain qualification rules laid out by HMRC. One of these includes the risk to capital condition*, which ensures the schemes are focused on investment in early-stage companies that have the intention to grow and develop in the longer term.
*VCM8530 – Venture Capital Schemes: risk-to-capital condition: an overview of the risk-to-capital condition – HMRC internal manual – GOV.UK (www.gov.uk)
Company Age/Stage of Development
In accordance with EIS and VCT qualification rules, they can fund businesses up to 7 years old, with up to 250 employees*. As requirements are consistent across the products, they can invest in the same businesses. This dispels the myth in the market that VCTs invest in later stage, and therefore lower risk companies. The company age and stage of development should be considered according to each fund.
*More lenient rules lenient rules are allowed for companies that qualify as Knowledge Intensive, see ‘Qualifying Rules’ section for more information.
Resource
Typically, both EIS and VCT funds are managed by regulated Investment Managers. This is likely to allow investors the reassurance of investing alongside experienced professionals who might take a proactive role in driving growth within portfolio companies. For most investors, it is important to adopt a portfolio approach as Investment Managers use their experience of other early-stage companies to help them grow, recruit, access further funding and much more. Investment Managers are responsible for ensuring the VCT and EIS remains qualifying according to HMRC guidelines. Should companies no longer meet the qualification criteria set, investors may be subject to repaying tax reliefs claimed.
Tax Relief
Both VCT and EIS offer 30% upfront income tax relief on the amount invested, in the current tax year.
Both VCT and EIS offer capital gains tax (CGT) free growth, meaning no CGT is payable on exit.
Why not subscribe to watch the Educational Videos?
To accompany the online learning material we have also included a series of 4 videos to help explain EIS. Each video is 45 minutes long. To access video content you will need to register. Based on attendee feedback, this series is classed as a world leading event according to Net Promoter Scores.
EIS: The Basics – On Demand
Our industry leading educational programme covers the basics on what you need to know to recommend an EIS.
If you’ve never recommended an EIS before, we suggest you start with episode 1.
Click the image below to sign up and access the video instantly, free of charge.
EPISODE 1
The Modern World of EIS
An exploration into why EIS is more popular than ever, how early-stage companies are performing in the modern day climate and covering the basics of the tax reliefs.
45 mins
EPISODE 2
Trigger Points
Investigating the types of clients where EIS is most suitable.
45 mins
EPISODE 3
Due Diligence & Research
Understanding the due diligence required by advisers who are recommending EIS to clients.
45 mins
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.
Click the image below to sign up and access the video instantly, free of charge.
EPISODE 1
Journey of an Investee Company
Investigating the journey of companies as they grow to the point of exit, and understanding how returns are achieved through an EIS investment.
45 mins
EPISODE 2
More than just a tax tool
By analysing findings established in the Hardman & Co report, we discuss how you can add Venture Capital to a clients portfolio without impacting overall risk levels.
45 minutes
EPISODE 3
Financial Planning Considerations
Understanding the due diligence associated with recommending an EIS, and a closer look at tax planning scenarios.
45 minutes
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.
Keep in the loop
Register here to receive information, including invitations to exclusive Deepbridge events, links to our new podcasts and important industry updates.
