ABOUT SEIS & EIS
Pink Flamingo Films has established a production company to carry on a Qualifying Trade which enables Shareholders to claim SEIS and EIS Relief. The purpose of the SEIS/EIS is to assist small to medium sized companies engaged in certain qualifying activities to raise capital. It does so by offering a range of income tax and capital gains tax reliefs for Investors in qualifying shares in those companies.
Income tax relief, CGT deferral relief, CGT exemption relief and loss relief and inheritance relief may all be available to Investors under the SEIS/EIS legislation.
SEIS/EIS Relief can be claimed only by a “Qualifying Investor” who subscribes for new “Eligible Shares” issued by a “Qualifying Company” which conducts a “Qualifying Trade”.
The benefit of SEIS/EIS is that down side can be quantified for any investor and the UPSIDE IS COMPLETELY TAX FREE.
SEIS INVESTMENT - AN OVERVIEW
WHAT IS SEIS FUNDING?
SEIS funding is a term used to describe a situation where an investor funds a company (generally start-up or early-stage) and then receives tax relief on that investment through the SEIS scheme.
WHAT IS THE SEIS SCHEME, and who is it appropriate for?
The Seed Enterprise Investment Scheme (SEIS) was introduced in 2012 to extend the Enterprise Investment Scheme (EIS) to smaller, early-stage businesses.
Some of the qualifying criteria that are applicable for EIS were loosened slightly from the SEIS, although to qualify, a company must have been trading for less than 2 years in a qualifying trade.
The two schemes share a number of similarities, and companies that receive initial investment under SEIS often use EIS to raise further funds – either at the same time as SEIS or later.
For more details click the button below.
WHAT TAX RELIEF IS AVAILABLE TO INVESTORS?
SEIS offers investors income tax relief of 50% on up to £100,000 of investment in qualifying shares per tax year.
So for example, if an investor pays £18,000 in annual income tax and invests £20,000 into qualifying shares in an SEIS-qualifying company, the investor will receive £10,000 back on income tax paid, reducing their income tax bill to £8,000.
This effectively lowers the risk to investors, reducing their exposure by 50%.
Furthermore, investors are exempt from capital gains tax on any profits made from the sale of shares in SEIS-qualifying businesses, providing the sale occurs after three years from the date of investment. This increases the potential returns on successful investment.
Any losses on shares may also be set against the investor’s capital gains or income tax, further limiting exposure.
IS MY COMPANY SEIS QUALIFYING?
Whilst many start-up and early-stage businesses do qualify, there are a number of exclusions so make sure you take appropriate advice from a professional / your accountant.
Some key requirements include:
The company can only issue a maximum of £150,000 in SEIS qualifying shares in lit lifetime
The company must be unquoted at the time the shares are issued and have no arrangements to become quoted
The company must have fewer than 25 full-time employees
The company must have gross assets of no more than £200,000
The company must have been trading for no more than 2 years in a ‘qualifying trade’, as defined by HMRC. The number of qualifying trades is larger than those allowed under EIS, although restrictions still apply
For more details click the button below.
WHO PROVIDES SEIS FUNDING?
There are two general routes to receiving SEIS funding. The main providers of SEIS funding are angel investors (otherwise known as High Net Worths (“HNWs”)). However, there are also funds set up specifically for this purpose, normally referred to as SEIS funds.
HOW CAN YOU BENEFIT?
You must have a corresponding income tax liability in either 2015/16 or 2016/17 (or both).
You can also claim additional relief against capital gains tax liabilities in either 2015/16 or 2016/17 (on both).
See example below.
Note 1: You cannot claim capital gains tax relief alone
Note: 2 You cannot claim income tax relief against 2016/17 and claim CGT relief against 2015/16 or vice versa
Note 3: Tax reliefs are dependent upon investor’s individual circumstances and are subject to change
Assumes the investor has capital gain realised in the relevant tax year at the top rate of CGT in each year.
Assumes the investor is able to claim share loss relief against income tax at the top rate of 45% if shares in a company become of reliable value.
EIS INVESTMENT - AN OVERVIEW
THE ENTERPRISE INVESTMENT SCHEME
The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
INCOME TAX RELIEF
This is available to individuals only, who subscribe for (although this can be through a nominee), shares in an Enterprise Investment Scheme (EIS). Relief is at 30 per cent of the cost of the shares, to be set against the individual’s Income Tax liability for the tax year in which the investment was made.
Relief can be claimed up to a maximum of £1,000,000 invested in such shares, giving a maximum tax reduction in any one year of £300,000 providing you have sufficient Income Tax liability to cover it. There is a ‘carry back’ facility which allows the all or part of the cost of shares acquired in one tax year, to be treated as though those shares had been acquired in the preceding tax year. Relief is then given against the Income Tax liability of that preceding year rather than against the tax year in which those shares were acquired. This is subject to the overriding limit for relief for each year.
The shares must be held for a certain period or Income Tax relief will be withdrawn. Generally, this is three years from the date the shares were issued. But if the qualifying trade started after the shares were issued, the period is three years from the date the trade actually started. Income Tax relief can only be claimed by individuals who are not ‘connected’ with the company.
CAPITAL GAINS TAX EXEMPTION
If you have received Income Tax relief (which has not subsequently been withdrawn) on the cost of the shares, and the shares are disposed of after they have been held for the three year period, any gain is free from Capital Gains Tax.
Note: if no claim to income tax relief is made, then any subsequent disposal of the shares will not qualify for exemption from capital gains.
If the shares are disposed of at a loss, you can elect that the amount of the loss, less any Income Tax relief given, can be set against income of the year in which they were disposed of, or any income of the previous year, instead of being set off against any capital gains.
CAPITAL GAINS TAX DEFERRAL RELIEF
This is available to individuals and trustees of certain trusts. The payment of tax on a capital gain can be deferred where the gain is invested in shares of an EIS qualifying company. The gain can arise from the disposal of any kind of asset, but the investment must be made within the period one year before or three years after the gain arose. There are no minimum or maximum amounts for deferral. And it does not matter whether the investor is connected with the company or not. Unconnected investors may claim both Income Tax and capital gains deferral relief. There is no minimum period for which the shares must be held; the deferred capital gain is brought back into charge whenever the shares are disposed of, or are deemed to have been disposed of under the EIS legislation.
All shares must be paid up in full, in cash, when they are issued. Shares must be full-risk ordinary shares, and may not be redeemable or carry preferential rights to the company’s assets in the event of a winding up. Shares may carry limited preferential rights to dividends, but may not include rights where either: The rights attaching to the share include scope for the amount of the dividend to be varied based on a decision taken by the company, the shareholder or any other person.
(Please note: this exclusion covers only those shares which carry preferential rights and does not therefore prevent the voting of dividends in respect of non-preferential shares, nor does it prevent shareholders from choosing to waive a dividend payment should they wish to do so.)
The right to receive dividends is ‘cumulative’ – that is, where a dividend which has become payable is not in fact paid, the company is obliged to pay it a later time, normally once funds become available. There must be no arrangements to protect the investor from the normal risks associated with investing in shares, and no arrangements at the time of investment for the shares to be sold at the end of the relevant period. The shares may not be acquired using a loan made available on terms which would not have applied other than in connection with the acquisition of the shares in question. The shares must not be issued under any ‘reciprocal’ arrangements, where company owners agree to invest in each other’s companies in order to obtain tax relief.
There must be no arrangements (either at the time of issue of the shares or later) to structure a company’s activities with the main purpose of allowing a party other than the company to benefit from the tax advantaged finance which the scheme is intended to incentivise; or where those activities have no commercial purpose other than to generate tax relief.
BEHIND THE SCENES
Our clients are more than just investors, one of the biggest and most exciting aspects of investing and working in film is the time spent on the film set. Our clients have the opportunity to visit the film set and get closer to the action whilst we are filming, and where appropriate are offered the chance to participate as an extra or supporting cast. This first hand insight into filmmaking has proven to be a memorable and exciting experience for the investor and family members. Watching your investment in the film and the script actually come to life is the reason that investing in film can be more satisfying than another type of investment and nothing comes close in terms of thrill and excitement.
VIP PREMIERS FOR INVESTORS
We regularly hold a number of premier events such as launch parties, black tie dinners and pre-release screenings, enabling the investors to experience the thrill of watching their film move and engross a cinema audience. When ever possible we encourage our investors to attend special events where they can meet the actors, director and producers. chance to attend our annual event at BAFTA and the Cannes Film festival to complete the film experience.
EXECUTIVE PRODUCER / PERSONAL CREDIT
Certain levels of investment will warrant a Executive Producer credit or recognition for investing in the film, your name will appear on the film credits and posters around the world. Some investors have the potential to become more involved in the production of the film, which is ideal for investors looking to build a profile or career in the UK Film Industry.
BEHIND THE SCENES ACCESS
Exclusive investor-only access to the website with access to scripts in Development and the opportunity to track the production and ask the producers questions. Exclusive previews of images and content from the front line of the shoot.
Investor packs which will include the opportunity to ask the producers film-related questions. Exclusive previews of images and content from the set. Exclusive material ahead of release to the general public. These could prove very valuable should a film achieve cult status.
OBTAINING YOUR INCOME TAX RELIEF
Under EIS rules, the company must be trading for four months before they can apply to HMRC for the certificates which will enable you to claim your tax reliefs. Once they have applied for them it usually takes two months before they have the completed forms ready to send to investors.
The relevant date for income tax relief, from a tax year perspective, is the date on which investments are made into the qualifying company.
You cannot claim tax relief until the company sends you a form – called EIS3.
Your claim can be made via your self assessment tax return for the tax year in which the shares were issued. If the shares were issued in a previous year, and/or if the claim is for capital gains deferral relief, the claim part of the form EIS3 must also be completed and sent to your tax office.
If you have an EIS3 that would allow you to claim income tax relief in the current tax year, you can request a change to your PAYE tax code, or an adjustment to any self assessment payment on account due. You will still have to make the claim itself on your tax return when you obtain it.
Full use of these tax advantages will depend on individual circumstances and if you’re unsure of your own potential tax liabilities, you should seek professional advice from a qualified tax adviser. Please remember that tax rules and regulations are subject to change.
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.
Please visit the HMRC website for further information on EIS tax relief.
FACTS AND FIGURES
HMRC KEY STATISTICS – OCTOBER 2016
Enterprise Investment Scheme
Since the Enterprise Investment Scheme (EIS) was launched in 1993-94, over 24,620 individual companies have received investment through the scheme and almost £14.2 billion of funds have been raised.
Data for 2014-15 shows that 3,265 companies raised a total of £1,816 million of funds under the EIS scheme. In 2013-14, 2,840 companies raised £1,591 million of funds.
Data for 2014-15 show that the 1,660 companies raising funds for the first time under the scheme raised a total of £1,022 million compared with 1,405 first time companies raising £897 million in 2013-2014.
In 2014-15, companies from the Business Services sector accounted for over £600 million of investment (one third of all EIS investment)
London and the South East continued to account for the largest proportion of investment with companies in these regions receiving 65% of investment in 2014-15
Seed Enterprise Investment Scheme
In 2014-15, 2,290 companies received investment through the Seed Enterprise Investment Scheme (SEIS) and £175 million of funds were raised. This compares with 2,110 companies raising a total of £171 million under SEIS in 2013-14.
Over 1,800 of these companies were raising funds under SEIS for the first time in 2014-15, representing £152 million in investment.
In 2014-15, companies from the Hi-tech and Business services sectors made up 62% of the amount of SEIS investment received.
To see the full HMRC EIS and SEIS statistics report click the button below.