UK tax payers can earn up to 50% tax relief on investments*
There are two key tax breaks to look for when it comes to investing on Crowd121. Both can considerably shrink your income tax and Capital Gains Tax bill while helping to cover losses. Plus, they can be carried back to the previous year to make the most of any tax relief you didn’t use.
Enterprise Investment Scheme
The Enterprise Investment Scheme is designed to help smaller, higher-risk companies raise finance by offering tax relief on new shares of companies that qualify. For the investor, it’s a tax-efficient way to invest in small companies.
You can invest up to £1,000,000 in any tax year and receive 30% tax relief, as long as you stay invested for at least three years. An additional £1,000,000 is eligible for the same 30% relief for investment in “knowledge-intensive” companies.
On top of that, Capital Gains Tax on EIS shares can be deferred if you reinvest the gains into an EIS-eligible company. Or – if you make a loss on your investment – you can offset the loss against your tax bill for that year or the previous year.
Seed Enterprise Investment Scheme
SEIS is a derivative of the Enterprise Investment Scheme (EIS) that targets younger, smaller companies to encourage seed investment. At Crowd121, we no longer conduct raises with SEIS support, but we’ve included it here so you can stay informed.
Investors, including directors, can receive initial tax relief of 50% on investments up to £100,000 and Capital Gains Tax (CGT) exemption for half of any gain on the SEIS shares if they are reinvested into another SEIS-eligible company.
Seed investing is always riskier, so the loss relief benefit of the scheme is incredibly attractive. Like EIS, if your investment makes a loss, you can offset the loss against your tax bill for that year or the previous year.
EIS at a glance
Maximum investment eligible for relief | £1 million + £1 million invested only in “knowledge-intensive” companies |
Income tax relief | 30% of the sums invested, up to the annual investment limit, provided the shares are held for three years. |
Capital Gains Tax reinvestment relief | 100% of the CGT payment can be deferred if capital gain is re-invested in EIS eligible shares. |
Capital Gains Tax disposal relief | CGT deferral exemption is available if shares are held for three years and income tax relief has been claimed. |
Loss relief | If the shares are disposed of at a loss, you can offset the loss against income tax of that year or of the previous year. |
Carry back | You can offset some – or all – of this year’s tax relief against income tax from the previous tax year, as long as this does not exceed the previous tax year’s allowance. |
What are the eligibility criteria for a company? | < 7 years old* < £15 million gross assets < 250 employees |
How much can a company raise? | £5 million per year £12 million in its lifetime |
Who can claim? | UK taxpayers |
Who can’t claim? | If you hold more than 30% of the share capital or voting rights in the company. |
If you are an employee or an associate of an employee (including directors) | |
When can you claim? | From: Four months after the business began trading. Until: Five years after 31st January in the tax year after you made the investment. |
*Requirements for knowledge-intensive companies differ and can be found here.
The Benefits of Carry Back
The “carry back” facility allows investors to elect for all or part of EIS/SEIS eligible shares to be treated as though they were purchased in the previous tax year. This allows you to claim any unused tax relief from the previous year. So – if you did not claim any tax relief last year – you can double your allowance for this year by carrying it back.
The amount you can carry back is limited by your maximum allowance for that year. So if you used up all of your tax relief last year, you can’t carry anything back.
Example 1 – carrying back all of the relief
You invest £20,000 in the year 2020-2021 in EIS qualifying shares. The EIS relief available is £6,000 (30% of the £20,000 investment).
Say your tax liability from the previous year (2019-2020) is £15,000 before SEIS relief. You can carry all of the EIS relief back, reducing your tax liability to £9,000 (£15,000 – £6,000).
Example 2 – unable to use all of the relief
Again, you invest £20,000 in the year 2020-2021 in EIS qualifying shares. The EIS relief available is £6,000 (30% of the £20,000 investment).
Now, say your tax liability from the previous year (2019-2020) is lower: £5,500 before EIS relief. This time, you can reduce your tax bill to zero as a result of this EIS investment, but the rest of the relief is lost: £500 (£6,000 – £5,500).
For more information, please see the HMRC website.
Frequently asked questions
Can’t find your answer? Take a look at our full FAQs.
The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are UK government schemes designed to help smaller higher-risk trading companies raise finance, by offering a range of tax relief to investors who purchase new shares in those companies.
Where a business is listed as ‘EIS’ on Crowd121, this tax relief will be available to qualifying investors.
We don’t conduct raises with SEIS support.
If you wish to claim Tax Relief on your investment, before making the investment, ensure that the Tax Relief option is enabled on your account. You can find this in your account settings.
The process of claiming S/EIS is much the same for both. We don’t conduct raises with SEIS support on Crowd121 so here is an overview for how it works for EIS, including what goes on behind the scenes on the part of the company and HMRC:
1. Make sure that the company qualifies for EIS. The company must fulfil the criteria above (“what companies may be EIS eligible”). If the company is eligible, they will be listed as ‘EIS’ on Crowd121. Companies are only listed as ‘EIS’ or ‘EIS Pending’ if they have ‘Advance Assurance’ – a confirmation of eligibility from HMRC – or have issued EIS shares in the last 12 months.
2. Make the investment. The investment must be in ordinary shares worth no more than 30% of the company, bought in cash.
3. Wait to receive your EIS3 form. When the company has been trading for four months, the company must submit form SEIS1/EIS1 to the Small Companies Enterprise Centre (SCEC) of HMRC. Once the SEIS1/EIS1 has been reviewed and the requirements met, the SCEC will issue a form EIS3. We make the EIS3 form available electronically to investors via their Crowd121 portfolio.
4. Use the EIS3 form to claim tax relief. How you do this will differ slightly depending on whether you submit your own tax filings:
a. If you are submitting your own tax filings, you don’t need to send the EIS certificate to HMRC along with your return – only if they request it.
b. If you aren’t submitting your own tax filing, you need to complete pages 3&4 on the EIS3 form and send them to the office that deals with your PAYE. You can find this information on any previous correspondence you may have received from HMRC. Your employer should also hold this information
SEIS or EIS shares must be held for a minimum of three years to benefit from income tax relief, and as such should be seen as a long-term investment. You must retain your shares until the share termination date shown on your S/EIS certificate. If your shares are sold before you have held them for three years, you will have to inform HMRC and repay any income tax relief you have claimed.
The company must have been trading for 4 months they have raised before they can submit a EIS/SEIS application to HMRC.
Providing the company meets the above criteria, we will work with the company to prepare the necessary paperwork and submit an application for tax relief to HMRC.
Once the paperwork has been submitted, HMRC generally advises that they can take up to 45 working days to process the application. HMRC will then send approval to issue tax certificates, at which point we will make your certificate available to download from your portfolio.
If you change your postal address, your tax relief certificate will update automatically when you have updated your Crowdcube account. Please also ensure you advise HMRC of a change of address.
You can find more information on how to claim EIS or SEIS on your investment once you have received your certificate here.
Pending
In these instances, the business has applied for EIS advance assurance, but has yet to receive written confirmation. In these cases, confirmation of whether or not the company has received advance assurance will be given in the cooling off email sent to investors after the pitch closes.
Partial
In these instances there is EIS available for a portion, but not all, of the raise. For example, if a business raising £100,000 might have only £20,000 of that raise as EIS-eligible, then the page will display ‘EIS Partial.’
There are two main restrictions to EIS eligibility, both relating to whether you are “connected to the company or become connected during the period of your investment. This applies for up to 2 years before and 3 years after the investment. This “connection” can take two forms:
1) Connection by financial interest
You are not eligible if you control the company or hold more than 30% of the share capital or voting rights. All relatives except siblings are included within these restrictions.
2) Connection by employment
Partners, directors and employees of the company are all connected with it and therefore not eligible, as are associates. Associates are business partners, trustees and all relatives.
Other restrictions
Tax relief will also be withdrawn if the company loses its qualifying status. The relief will be either reduced or withdrawn if the shares are disposed of or if the investor receives “value” from the company such as a loan or an asset below market value. The only exceptions are Business Angels, where the connection is as a director who receives no remuneration from the company.
If the market value of the reward exceeds £1,000 it may affect your ability to claim tax relief. Unfortunately we are not able to offer legal or tax advice, but we hope the detailed guidance issued by HMRC may be helpful.
You must be a UK taxpayer with a UK tax liability to benefit from EIS relief.
But, if you pay tax in the UK but you have your permanent home outside the UK, you may still be able to benefit from tax relief. Visit this HMRC site to work out if this applies to you.
French investors supporting small-to-medium sized businesses may be eligible for tax relief from two schemes: FCPI (Fonds Commun de Placement dans l’Innovation) and FIP (Fonds d’Investissement de Proximité). Visit this page for a comparison guide of the two schemes in French.
German investors supporting start-ups may be eligible for a tax free grant of up to €100,000 and a refund of Capital Gains Tax from the INVEST scheme. Visit this page for a guide to the INVEST scheme.
There are a number of tax reliefs available to Spanish investors, including tax relief for investment in new or recently-created companies, as well as a tax exemption for reinvestment in these shares. Visit this page for a guide to the available tax benefits.
At the time of writing, there are no available tax reliefs for Danish investors. Visit this page for a guide to tax credits and incentives in Denmark.
At the time of writing, there are no available tax reliefs for Finnish investors. Visit this page for a guide to tax credits and incentives in Finland.
At the time of writing, there are no available tax reliefs for Icelandic investors. Visit this page for a guide to tax credits and incentives in Iceland.
Visit this page for more information on tax relief in Norway.
At the time of writing, there are no available tax reliefs for Swedish investors. Visit this page for a guide to tax credits and incentives in Sweden.
*Please note:
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.
Risk warning
Investing in start-ups and early-stage businesses involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Crowd121 is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions. You will only be able to invest via Crowd121 once you are registered as sufficiently sophisticated. Please click here to read the full Risk Warning.
Crowd121 Capital is authorised and regulated by the Financial Conduct Authority (FCA) . This page has been approved by Crowd121. Pitches for investment are not offers to the public and investments can only be made by members of Crowd121.com on the basis of information provided in the pitches by the companies concerned. Further restrictions and Crowd121’s limitation of liability are set out in the Investor Terms and Conditions.
Investment opportunities are not offers to the public and investors must be eligible Crowd121 members. Please seek independent advice as required as Crowd121 does not give investment or tax advice.