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How to claim EIS tax relief

How to claim EIS tax relief
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    With all the forms and dates involved, filing your taxes can be a confusing time, especially if you’re also looking to find ways to make the most of the relief available to you.

    Read on for some top tips on how to claim EIS tax relief from our experts.

    What is EIS tax relief?

    Standing for Enterprise Investment Scheme, EIS is one of four venture capital schemes and is designed so that your company can raise money to help grow your business.

    You will need to look into all of the choices to work out which one you are applicable for, and which is the best to get the most for your business. Under EIS, you can raise up to £5 million each year, or a maximum of £12 million in the lifetime of your company.

    To qualify for the relief, the business has to be a permanent establishment in the UK and can’t be trading on a recognised stock exchange at the time of the share issue.

    Download our free guide all about Enterprise Investment Schemes here:

    How to claim EIS tax relief

    There are a few ways you can go about applying for the benefit, so it’s up to you to determine which is the best way for you. You can use your paper tax return and fill out the additional information sheet or you can claim the tax relief through your online self-assessment form.

    When asked if you want to claim for other tax relief, you will simply need to answer yes and fill in the following questions about your EIS claim. Alternatively, you can also complete the claim form you receive and send it to your HMRC tax office.

    It is also useful for you to know that HMRC doesn’t actually require you to submit the EIS3 or EIS5 certificates for the investments that you are claiming tax relief on. Despite this, however, they may ask you to produce them at a later point, so it’s best to have them to hand if you plan on applying for EIS tax relief.

    These certificates have some important information on that will help you to fill in the forms, so they are useful to have throughout the process anyway.

    What can you use the money for?

    If you find that you qualify for EIS and decide to follow the above steps to claim the benefit, you will need to take note of what you are allowed to use the money you have gained for. There are a few rules that you will have to follow when using the funds.

    The qualifying business activities are:

    • A qualifying trade (This counts most trades, including any research and development which will lead to a qualifying trade; however, you will need to make sure to check that you fall into this category)
    • Preparing to carry out a qualifying trade (which has to begin within 2 years of the investment)
    • Research and development, which is expected to lead to a qualifying trade

    Furthermore, the money that is raised by EIS has to be spent considering the following constraints:

    • It must be spent within 2 years of the investment, or if later, the date you started trading
    • It must not be used to buy all or part of another business
    • It must pose a risk of loss to capital for the investor
    • It must be used to grow or develop your business

    What to do now

    Hopefully, you have a clearer idea of how to claim EIS tax relief now, but it can still be a confusing process. If you need any accountancy assistance, don’t hesitate to call us on 0203 011 1898 or fill out the contact form as our team is here to help. Whether it’s taxes, VAT, self-assessment, corporation tax or annual accounting, we will do our best to assist you.

    Furthermore, WIS Accountancy are a family of businesses, so accountancy isn’t the only thing we can help you with. We can also assist you with mortgages through WIS Mortgages as well as help entrepreneurs with business insurance through WIS Business Protection. With such a wide range of services and expertise, why not get in contact with us today and let us help you?

    FAQs

    Can I claim EIS for a previous year?

    Ordinarily, you will be able to claim the relief for the tax year in which the relevant shares are issued. However, if you decide to, you can treat however many shares you choose as if they were issues in the year before and claim relief in that year. If you do this, it is subject to the maximum limit for the year.

    How does EIS work for tax relief?

    When investors sell EIS shares, any subsequent growth in value gained from an investment is completely tax-free. For small companies, this is useful as they have the potential to expand considerably.

    How do I submit my EIS contributions online?

    One of the easiest ways to claim your EIS tax relief is through your online self-assessment. You will simply need to select yes when asked if you want to claim other tax relief. Later, you will have to input the amount of EIS subscriptions you want to claim tax relief on and provide details of each of your EIS investments.

    Continue reading about tax reliefs here:

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