Q: I’m not clear on the concept of a 30% guaranteed return on my investment in year 1 – how would I receive this return and how is it guaranteed?
A: If you qualify for EIS tax reliefs on your investment, once the Offer closes, along with your Ordinary B Shares you would receive an EIS3 claim form to claim back 30% of your investment as a refund from the Income Tax you have paid in the current and/or previous tax year (and any Capital Gains Tax if applicable).
This is a simple form and provided you paid (or will pay) at least the equivalent in tax this tax year (or last if appropriate) HMRC would then make a tax refund payment to you (if claiming for last tax year) or amend your tax code for the current tax year, reducing or eliminating your Income Tax deductions in your payslip. Provided you keep the B Ordinary Shares for at least three years, this 30% Income Tax refund (plus any Capital Gains Tax refund you receive) is yours to keep, whatever happens to the Company – guaranteed by the Government and paid upfront.
Q: Can I split the EIS relief claim across multiple tax years for one single share application (i.e. allocated and paid for in the same transaction on the same day)?
A: Short answer – yes!
Q: Is the process for claiming EIS reliefs identical for employed and self-employed people?
A: Another short answer – yes!
Q: Can investors elect to claim EIS reliefs in future tax years against investments made in the current tax year (i.e. not claim now but choose to do so in the future against what is now a future tax year)?
A: No. Only current and/or last tax year.
Q: Are B Ordinary Shares in the Company redeemable? If not, how do I dispose of my B Ordinary Shares?
A: I’m afraid B Ordinary Shares are not redeemable. As outlined above, once the initial 3 years has expired the Directors will present a strategy to Shareholders for approval which will offer a number of options to allow disposal of your B Ordinary Shares.
Q: Is there a standard timeframe from HMRC receiving a correctly completed EIS3 claim form from an Investor and paying the 30% EIS Income Tax relief to the Investor?
A: If claiming for the current 2018-19 tax year, the Investor can obtain their EIS Income Tax relief by either:
- writing to HMRC to request a change to their tax coding for the current tax year (though by their own admission it can be a few months before this is actioned by HMRC), and therefore receive the EIS Income Tax relief via their gross pay every month; or
- submitting a Self Assessment return once the current tax year is over (so anytime from 6th April 2020) and use the Income Tax rebate to reduce/eliminate their Income Tax bill for the year.
However, if an investor carries back the investment to the previous tax year (2018-19 is the earliest tax year reliefs can be claimed for) they can claim it immediately either by filing an amended Self Assessment return for the last tax year (if they have already filed their Self Assessment return for the last tax year) or including the claim with any Self Assessment form they intend to submit for the last tax year.
HMRC have a turnaround target of 4 weeks from receipt of the EIS3 tax relief claim form to issuing refunds to Investors. However, HMRC has verbally informed us that in reality, it can take between 2 and 6 weeks depending on their backlog and the time of year.
Q: I have a portfolio of investments and have a substantial amount of money that I could invest in the Company. But normally I would expect to receive discounted or preference shares. Is this something the Company offers as an incentive?
A: While we may wish that we were in a position to offer discounted or preference shares for larger or initial Investors, it would make B Ordinary Shares ineligible for EIS tax benefits – all B Ordinary Shares must be paid for in full and no discount or preference rights can attach themselves to these Shares. However, we believe that we have a highly competitive offering – as well as a superb film-making experience – for potential investors interested in getting involved with film projects, especially with investments of £50,000 or more which will entitle the Investor to an Executive Producer credit.
Q: A Ordinary Shares and B Ordinary Shares are treated equally until all of the money invested has been recouped from sales income. What percentage of the profits would each B Ordinary Share be entitled to?
A: If The full budget of the Film is £2 million. As such the Company expects the final number of B Ordinary Shares issued to be in the region of 2,000,000 at £1 per share, with the first 150,000 of issued B Ordinary Shares subject to SEIS reliefs, and the remaining 1,850,000 subjects to EIS reliefs. If we achieve full subscription to this Offer (i.e. 1,850,000 further B Ordinary Shares are issued), then ultimately these B Ordinary Shareholders will be entitled to a pro-rata share of £1,850,000 of the first £2 million of net sales income generated by the Company (£2 million representing the overall budget of the Film). After that, for every £1 of net sales income generated over the budget of the Film, B Ordinary Shareholders will be entitled to a pro-rata share of 50p of that £1.
Q: What if a Limited Company wants to invest? Can they get EIS benefits?
A: Unfortunately EIS reliefs only apply to UK-taxpaying individuals.
Q: How does the Capital Gains Tax deferral relief operate in practice?
A: EIS Capital Gains Tax deferral relief is up to 100% of the Capital Gains tax bill if it became due in the tax year 2018/19 or will become due in the tax year 2019/20.
To claim EIS Capital Gains Tax deferral relief, investors must also be eligible for some EIS Income Tax relief too (i.e. they must have paid some UK Income Tax in the year of the Capital Gain too). To get the maximum 100% off their Capital Gains tax bill, they would need to invest an amount in the Company (or several EIS companies) at least equal to the chargeable gain.
If claiming at the time of the Self Assessment return, investors must complete the claim form attached to the EIS3 certificate provided to them by the company and attach it to the Capital Gains summary pages of their tax return.
If investors are claiming after they have sent their tax return for the tax year they wish relief, they should complete the EIS3 claim form and send it to HMRC separately.
Q: How does EIS Loss relief operate in practice?
A: EIS Loss relief allows any loss (after EIS Income Tax relief has been applied) set off against other income in current or preceding years or carried forward against future Capital Gains liabilities. This is all done on a Self Assessment return for the tax year(s) in question. Capital Gains reinvestment relief is not taken into account when working out the loss, so any rebate paid due to this the Investor gets to keep.
less 30% Income Tax relief £30,000
= Net cost of investment £70,000
Investment worth £30,000 after 3 years so the loss of £70,000 of investor’s money less £30,000 Income Tax relief already received = £40,000 loss
45% taxpayer writes that off against Income Tax in the year of the loss, so saves a further £22,500 in Income Tax, reducing the loss to £17,500 overall.
Q: Can somebody invest into both SEIS and EIS in the same year and if so what are the maximums?
A: Yes. For EIS the cap is £1,000,000 of total investments per year, for SEIS £100,000 of total investments per year.
Q: Do you have the contact details for who to speak to at HMRC regarding any further EIS related queries?
A: Call the Small Company Enterprise Centre on 029 2032 6985 or email email@example.com