The Enterprise Investment Scheme (EIS), and Seed Enterprise Investment Scheme (SEIS) offer very attractive benefits to investors. Investors can only claim tax relief if the company meets certain conditions, one of these being the type of business which it operates.
We are often asked for our advice on whether a business will qualify for these tax reliefs and with our wide experience in this area we can offer our view based on our past clients and dealings with HMRC. The rules laid down by HMRC give an overview but not all businesses fit neatly into them, and there will always be grey areas.
Most trades qualify but there are a number of excluded activities in each of these schemes. It is important to remember that activities are only excluded if a substantial element of the company’s trade consists of the ‘excluded’ activity. There is no formal definition of ‘substantial’, but a general rule is no more than 20% of the trade. This 20% benchmark applies to the company as a whole, so the parent company may well qualify for SEIS or EIS status whilst a subsidiary may not.
So let’s look at what the rules currently dictate for trades excluded from EIS and SEIS: