Wondering how to raise finance for a project that you have in mind at your business? Join Current Capital, a company which specialise in guiding companies through their fundraising journey, as they detail how both crowdfunding and the Enterprise Investment Scheme can help you realise your goals:
Why you should consider crowdfunding
If you have been in the business world for a few years now, you are likely to associate with 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.
Such a process can take a long time to work through, not to mention requiring investors to arrange for their own due diligence and account for any associated costs. Fortunately, crowdfunding has made the entire process much more efficient.
Particularly appealing to small businesses that have been turned down by High Street banks in the past, crowdfunding is great for raising support, awareness and money towards a project. In effect, it enables companies to appeal directly to small investors (including members of the public) by trying to raise money for an idea in return for a share in the business.
Four key benefits of crowdfunding are as follows:
- 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.
Why you should consider the Enterprise Investment Scheme
Also referred to as the EIS, the Enterprise Investment Scheme is the government’s way to encourage companies to grow and attract investment from qualifying investors.
The EIS offers a raft of tax reliefs to investors when they buy new shares in the companies involved so to provide a helping hand to smaller, higher-risk trading companies to raise finance. Benefits of the scheme include:
- 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 2017/18 tax year and/or £1 million which is carried back to the 2016/17 tax year for a minimum of three years.
- 100 per cent inheritance tax relief after two years, so long as the investment is held at the time of death.
Putting this into context, the EIS works in that should a UK taxpayer invest £100,000 into a qualifying company, they will receive a £30,000 tax rebate from the HMRC as long as their income tax liability had exceeded £30,000 in the previous tax year.
This is a summary of EIS. Much more information about the initiative can be found on the GOV.UK site or here, including the complete breakdown and rules on 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.