The Enterprise Investment Scheme could be the leg-up your business needs to grow, and the latest HMRC statistics suggest the programme may be an under-exploited secret to the hospitality sector. So what is it and how do you qualify? David Gee explains
Are you looking to grow your catering business? Private companies limited by shares that obtain qualifying Enterprise Investment Scheme (EIS) status are far more likely to attract private equity investment, which could mean more money for your business and open up greater opportunities for growth.
Of funds raised in 2017-18, companies in the hospitality sector accounted for less than 5%, which suggests that there is plenty of scope for further businesses to take advantage of the scheme and gain a leg-up on their competition. Moreover, even though less than 5% of funds raised related to companies in the hospitality sector, this still equates to in excess of £75m.
How do you qualify and what are the benefits?
The company itself (along with other conditions) must have been trading for less than seven years, have fewer than 250 employees, have gross assets that do not exceed £15m before (or £16m after) the investment, be unquoted and must not be controlled by another company.
Should the company qualify, an investor could stand to benefit from lucrative income and capital gains tax reliefs. Investors may claim income tax relief at 30% of the sums invested, up to a potential maximum of £2m per year. Moreover, investors may have the possibility to claim hold-over relief and be exempt from capital gains tax in respect of any gains made on the investment. They may also be entitled to claim a deferral if the proceeds of any disposal are used to make a further qualifying investment.
Benefits to the business
Therefore, if a company obtains EIS qualifying status, the potential benefits for investors make the company a more attractive investment proposition. As such, the company can seek to attract investment from private equity investors who may otherwise consider the business too risky - or not consider it at all. As a result, EIS qualifying status will likely result in greater options to fund the growth of the business.
Moreover, sourcing funding through private equity investment means that the business will not be taking on debts that require servicing and will command interest. The company will also not be burdened by what can often be unwelcome restrictions on its activities under the terms of a loan.
So are you looking to start or grow your business in the hospitality sector? If so, why not look into gaining qualifying EIS status for your business and take advantage of the many benefits that the scheme can bring. The statistics show that there is funding out there and it could be available to you and your business to help take things to the next level.
David Gee is a corporate solicitor at Fletcher Day
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