Join Current Capital, a specialist in guiding individuals through their investment journeys, as they detail the benefits of both crowdfunding and the Enterprise Investment Scheme to those in business looking to raise finance for a new project:
The benefits of crowdfunding
If you have been a part of the business world for a number of years, you are very likely to have come across the following scenario. In the past, accountants, financial advisors or simply through word of mouth would have been the ways that investors heard of opportunities within business. From there, necessary self certification would need to be completed to become a qualifying investor, before they were provided with a presentation, brochure and application form about the opportunity. Those still interested in the investment would then be expected to sign an Investment Memorandum, and then perform their own due diligence and negotiate terms of their investment. Even then the process wasn’t complete, as significant ‘know your client’ procedures would need completing before funds were transferred to a lawyer’s account.
As well as requiring investors to arrange for their own due diligence and look into any associated costs, the above scenario made for a slow process. Fortunately, crowdfunding has made the entire process much more efficient.
Especially appealing to small business, which had been turned down by High Street banks in the past, crowdfunding gives people the opportunity to raise awareness, support and money towards a project. It also means companies can appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for ‘rewards’.
Here are just four reasons to consider crowdfunding:
- You receive advocates who will support both a business and their idea, becoming part of the journey and making for appealing ambassadors when the project develops in the future.
- Additional funding can be unlocked, such as grants, if a charity or community group or investors, loans or a pre-cursor to an equity crowdfunding campaign if a business.
- While creating and launching a project via a crowdfunding platform, those with the idea will need to think about how best to market the idea – developing their marketing skills in the process.
- Validation is received by the fact that small investors and members of the public are on board with an idea and are already paying or contributing in order to bring it to market.
The benefits of the Enterprise Investment Scheme
Also referred to as EIS, the Enterprise Investment Scheme has seen the Government encouraging companies to make use of qualifying investors to grow and attract investment.
This strategy means that finance can be raised by smaller, higher-risk trading companies through a number of tax reliefs being offered to investors. These tax reliefs then mean investors can purchase new shares in the companies involved in the form of private equity. For this purpose, companies can hire professionals like Lincoln Frost to help them choose the right company to buy shares from. Enterprise Investment Schemes come with a lot of benefits, three most important are listed below:
- A deferral of EIS Capital Gains Tax for the life of the investment on the amount subscribed.
- 30 per cent EIS income tax relief on the amount subscribed, which can be up to a maximum investment of 1 million in the 2016/17 tax year and/or 1 million which is carried back to the 2015/16 tax year).
- 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.
If this isn’t enough then there are also many helpful resources online to understand the process and the necessary requirements for tax relief. However, putting this into context, the EIS means that should a UK taxpayer invest 100,000 into a qualifying company, they will receive a 30,000 tax rebate from HMRC as long as in the previous tax year their income tax liability had exceeded 30,000.
This should serve as an introduction to the EIS initiative. Much more information about the scheme can be found on the GOV.UK site, including details about the various tax reliefs available, how tax relief can be claimed, times when tax relief can be reduced or withdrawn and how a company can qualify for the EIS.
