Navigating EIS challenges as an owner-managed business

For owner-managed businesses that have raised finance under the Enterprise Investment Scheme (EIS), the current challenging market conditions could pose significant risks. 

If your business goes into liquidation within three years of the investment, it can have serious implications for both your business and your investors.

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Income Tax Relief Withdrawal: If your business is liquidated within the three-year period following an EIS investment, the Income Tax relief that investors originally received may be clawed back. Specifically, 30% of any value received upon liquidation (up to the amount of the original relief) must be repaid. However, if the liquidation results in little to no value being returned, no Income Tax relief is withdrawn.

Capital Gains Tax Deferral – Relief Withdrawal: If an investor used the EIS investment to defer a capital gain, that deferred gain becomes immediately chargeable if your business goes into liquidation.

Use of Losses: If the proceeds from liquidation are less than the initial investment, investors can claim a loss. This loss is adjusted by any Income Tax relief that has not been withdrawn. Investors can offset this loss against their income for the year of the disposal or the previous year, or they can offset it against capital gains in the current or future years.

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Understanding these implications can help you navigate the complexities of EIS-related investments, and we are here to assist you in managing these challenges effectively.