Over the past few weeks we've provided posts on the individual tax reliefs available under the Enterprise Investment Scheme (EIS), and how you actually claim those tax reliefs.
- How to claim your EIS tax reliefs: income tax
- How to claim your EIS tax reliefs: capital gains tax
- How to claim your EIS tax reliefs: inheritance tax
- How to claim your EIS tax reliefs: loss relief
A quick summary of claiming the reliefs
The way that most reliefs are claimed varies depending on individual circumstances, including whether you file a self assessment return, which year the relief is being claimed from, and how you are wishing to claim your relief.
However, to claim relief you must first be issued an EIS3 form by the company issuing the shares. They will obtain these forms from HMRC and complete the details of the investment on the first page. Importantly, HMRC may request to see the EIS3 certificate for any claim made.
For investors who normally submit a self assessment tax return, income tax relief or loss relief is claimed by including the details in the tax return when submitted to HMRC at the end of the year. You can also claim against a previous year by submitting an amended return (if done so before the deadline), and to defer a gain, this is reported on your return at the end of the year as part of your calculations.
To report the deferred gain, you can complete the form attached to the EIS3 form and return this to HMRC. Likewise, if you are paid through PAYE, or wish to claim for a previous year, the EIS3 form provides sections to be completed to report these. As above, if you receive a tax return at the end of the year, any claim submitted for the current year should be included in your calculations, whether a deferral or a PAYE claim.
For other reliefs, such as IHT relief and capital gains disposal relief, these are automatically applied as long as the conditions are met and do not need to specifically be claimed. For IHT relief this means having held the shares for 2 years from the issue date and for CGT disposal relief you need to have held the shares for 3 years and have claimed at least some income tax relief on the shares.
While you do not need to claim a relief for disposal of EIS shares, the details of the disposal should still be reported as additional information on your tax return.
Important information to understand when claiming EIS tax reliefs
There are a few useful deadlines for the above that should be considered as part of your claim. The claim for income tax relief and CGT deferral must be made within 5 years of the 31st January after the tax year in which the shares are issued. For example, if you are issued shares in this tax year, 6th April 2018-5th April 2019, then you have until 31st January 2025 to claim your relief. For CGT deferral the EIS shares you subscribe for must be issued to you in the period beginning 12 months before, and ending 36 months after, the date of this disposal.
When it comes to loss relief, you don’t have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset. However the loss can only be claimed against the year it occurred in or the preceding year when offset against income tax. If offset against CGT, it can be carried forwards as with any capital loss. If a negligible value claim is made, you have more flexibility as you choose to treat the loss to be up to 2 years before the start of the tax year in which you make the claim. So, if you submitted your tax return on 31 January 2019 and included a claim with that tax return then you could specify an earlier time from 6 April 2016 to 30 January 2019.
As we have already mentioned, you cannot claim most reliefs until the company sends you an EIS3 certificate, which it cannot do until it has been trading for at least 4 months. Therefore it can take a few months for the application to be completed and the certificates issued. This certificate will contain all of the information related to the investment that is required, including the issuing HMRC office and their reference. For information on your HMRC tax office, to return the EIS3 claim form, your employer will be able to provide you with details.
This certificate must be kept safe, as HMRC may request that the original be sent in as evidence for the claim. As they are only issued as hard copies, another form must be requested if lost which again can take a few months.
Importantly, whilst the advice we have provided in recent weeks is based on the information and guidance available from HMRC, before any investment is made you should always consult a professional for impartial advice.
And if you haven't yet explored the EIS?
The Enterprise Investment Scheme was created over two decades ago to further promote investment into unlisted early-stage businesses further to the defunct Business Expansion Scheme. Since 1994, the scheme has developed and adjusted its approach, but its focus has remained the same - and up until the most recent records (October 2017), over £16.2 billion of funds have been raised.
As the scheme has focuses on investment into early-stage startups, it is seen as a 'higher risk/higher return' investment strategy. However, as we have looked at over the last four weeks, this risk is offset by a collection of tax reliefs and incentives that reduce the total exposure while maximising potential upside. It is these incentives that have changed gradually over time, dependant on the economic climate and the requirements of the scheme, ultimately ensuring the longevity and sustainability of the scheme.
Staunch supporters of the scheme (as well as its sister scheme, the Seed Enterprise Investment Scheme), we work closely with our investor network to provide an array of tax efficient investment opportunities, many of which fall under the EIS umbrella, and do similarly work closely with the companies raising investment to ensure they are as suitable and appropriate for our networks' requirements as possible.