In this article, Shane O'Donovan ACA, AITI, Tax Manager with PKF O'Connor, Leddy & Holmes, talks about how you can obtain tax relief through the EIIS.
Over the past eight years we've seen a number of tax reliefs abolished and the attractiveness of many other tax reliefs being limited by the high earners restriction. One of the few tax reliefs that remains is the Employment and Investment Incentive Scheme ("EIIS"). The EIIS was introduced by Finance Act 2011 and replaced the Business Expansion Scheme which had been in operation since 1984.
The EIIS is designed to encourage investment by individuals in small- and medium-sized companies. The EIIS allows an individual investor to obtain income tax relief on investments up to a maximum of 150,000 per annum in each tax year up to 2020. Individuals will qualify for EIIS relief if they subscribe for eligible shares in a qualifying company. Tax relief is given by means of a deduction from the qualifying individual's total income. Individuals will get relief as follows:
30% in the year of assessment, and a further 10% will be available where the company's employment levels have increased at the end of a period of three years from the investment or where evidence is provided that the company used the capital raised for expenditure on research and development. At the end of the four-year holding period, it is possible for the investor to receive their initial investment back, provided the company has sufficient funds to repurchase the shares issued to the investor.
The benefits of the EIIS are illustrated in Table 1:
This scheme is available to the majority of small-and medium-sized trading companies, including pharmacies. Companies must use the equity raised for the purpose of carrying on relevant trading activities.
An individual cannot avail of the relief if they are connected with the qualifying company at any time during the specified period. Broadly, the specified period is a period of two years before the date on which the shares are issued and ending three years after the issue of the shares. An individual is connected to a company if the individual (or an associate of the individual) is:
a partner of the company; or a director or employee of the company who, during the period of three years after the date on which the eligible shares were issued, receives or becomes entitled to receive any payment from the company that is not on an arm's-length basis. In addition, an individual will be...