Embed Size (px)
Citation preview
beyond accounts
What can EIS & Seed EIS do for your business?
Presentation by Peter Hedgethorne & Laura Salt
beyond accounts
Introduction
• Introduction – Peter Hedgethorne & Laura Salt
• Attendees to introduce themselves & advise what they hope to take away from today
• Brief outline of the format for today
beyond accounts
Find out how the process works
• What is EIS & how does it work?
• What is different about Seed EIS?
beyond accounts
What are the rules for EIS?
• History – Business Start Up Scheme, BES, EIS (Major –1990s)
• Individual investor limit - £1m pa 2013/14
• Company investment limit - £5m pa 2013/14
beyond accounts
What are the rules for EIS?
• Income tax relief for investor - 30%, can be carried back subject to p/y limit
beyond accounts
EIS Relief Example
Gross investment in EIS shares £10,000
Income tax relief at 30% £3,000
Net cost of EIS investment £7,000
beyond accounts
What are the rules for EIS?
• Capital gains on disposal of shares after 3 years are exempt
beyond accounts
What are the rules for EIS?
• Income tax relief available on losses on disposal of shares, net of income tax relief obtained
EIS Relief Example:Loss Relief
• You may also have claimed capital gains deferral
relief of £2,800
beyond accounts
What are the rules for EIS?
EIS Relief Example:Capital Gains Deferral Relief
NB The deferred charge of £2,800 is brought back into charge when the EIS shares are disposed of but investors have an opportunity to defer this again
by reinvesting in another EIS company.
Assumes top rate CGT of 28%
Can apply to gains 3 years before or
1 year after investment
beyond accounts
What are the rules for EIS?
• Tax relief clawed back if company rules not met for 3 years
• Paid directors and employees excluded, unless director where entitlement to payment starts after issue of shares (business angels)
• Individual can have no more than 30% of shares/votes/capital – includes associates’ rights (ancestors/descendants/spouses)
• Company employees – less than 250
• Company gross assets - £15m before and £16m after
beyond accounts
What are the rules for EIS?
• Company qualifying activities – non-qualifying are defined
• Money must be used within 2 years
• Must be trade or R&D for 4 months
• Newly-issued non redeemable ordinary shares with no preferential rights issued for cash
• Company need not be UK resident, but must have permanent establishment here
• Value received by investor will lead to withdrawal of all or part of the reliefs
• Company must be unquoted
beyond accounts
What are the rules for SEIS?
• History – From April 2012 and originally until April 2017, now indefinite.
• Individual investor limit - £100k pa 2013/14
• Company investment limit - £150k pa 2013/14
beyond accounts
What are the rules for SEIS?
• Income tax relief for investor - 50%, can be carried back subject to p/y limit
beyond accounts
SEIS Relief Example
Gross investment in SEIS shares £10,000
Income tax relief at 50% £5,000
Net cost of SEIS investment £5,000
beyond accounts
What are the rules for SEIS?
• Capital gains on disposal of shares after 3 years are exempt
SEIS Relief Example:
Capital Gains Tax Relief
beyond accounts
What are the rules for SEIS?
• Income tax relief available on losses on disposal of shares, net of income tax relief obtained
SEIS Relief Example:Loss Relief
Gross Investment into SEIS shares £10,000
Less income tax relief at 50% £5,000
Less loss relief £5,000 at 45% £2,250
Net cost of investment £2,750
beyond accounts
What are the rules for SEIS?
SEIS Relief Example:Capital Gains Exemption
Assumes top rate CGT of 28%
Applies to gains made in year of investment
Gross Investment into SEIS shares £10,000
Less income tax relief at 50% £5,000
Less capital gain exemption £1,400
Net cost of investment £3,600
beyond accounts
What are the rules for SEIS?
• Tax relief clawed back if company rules not met for 3 years
• Employees and their associates (ancestors/descendants/spouses) excluded, but not directors even if already paid.
• Individual can have no more than 30% of shares/votes/capital – includes associates’ rights
• Company employees – less than 25
• Company gross assets - £200k before investment
• Company must not have been trading for more
than 2 years
beyond accounts
What are the rules for SEIS?• Company qualifying activities – non-qualifying are defined
• Company must use money within 3 years
• Company must use 75% of invested funds before relief can be allowed
• Newly-issued non redeemable ordinary shares with no preferential rights issued for cash
• Company need not be UK resident, but must have permanent establishment here
• Company must be unquoted
• Value received by investor will lead to withdrawal
of all or part of the reliefs
beyond accounts
Legal Documentation
Term Sheet
Subscription & Investment Agreement
Articles of Association
Completion & Investment
Disclosure Letter
beyond accounts
Term Sheet/ Heads of Terms
• Key Financial & Legal Terms
– Subscription Price & Investment Schedule*
– Conditions Precedent*
– Completion timetable*
– Confidentiality
– Exclusivity
– Costs• Generally NOT legally binding*
beyond accounts
Common Drafting Pitfalls
Common Pitfalls
“Qualifying Trade”
Independence
Timings
Connected Parties
Use of Money Raised
Requirement
Companies in “Difficulty”
beyond accounts
Subscription & Investment Agreement
Key Consideration Issues
Decision Making • Founder -v- Investor Control• Flexible -v- Rigid Reporting• Reserved Matters• Deadlock
Investor Protection • Warranties/Indemnities• Anti-dilution• Tag Along provisions• Access to Information• Restrictive Covenants
Founder Protections • Board Protection• Drag Along• Good Leaver/Bad Leaver
Exit Longstop date
beyond accounts
Disclosure - EIS
Purpose
•Investor Protection against wrongful inducement•Complete and accurate disclosure of the condition of the company and its history•Limitation of liability•Liability for breach of warranty to the extent disclose•Warranty –v- Indemnity protection
Scope
• Legal Status
• Accuracy of Financial Statements
• Business Plan
• Assets including IP
• Liabilities
• Material Contracts
• Litigation
beyond accounts
Completion
Investor Board Minutes
Shareholder Consents
• Issue of Shares
• Adoption of articles
Point of Investment & Payment for
Shares
Execution of Documents
beyond accounts
Costs involved?
• We will briefly explain the costs for the work completed by both Accountants & Solicitors
• It is important that you advise both your Accountant & Solicitor from the outset so that they work can together.
beyond accounts
Any comments?
Do you have any questions about any of the matters discussed today?
We appreciate that this topic is complex and some of the issues you have may need to be discussed at a later date.
Contact details:
Thank you for listening.
Disclaimer: The information in this presentation is an overview and
does not contain all information necessary to action EIS & SEIS.
