The attractiveness of the Chelwood Community Energy Share Offer has been enhanced by being granted pre-approval for the Enterprise Investment Scheme by HMRC
We have been given pre-approval by HMRC that shares purchased in Chelwood Community Energy’s Share Offer will be eligible for the Enterprise Investment Scheme (EIS). This means that qualifying UK taxpayers can claim 30% of their investment back, up to a maximum of the amount of tax that they have paid this tax year and the previous tax year. For example, a person investing £10,000 who has paid income tax in the 2014 and 2015 tax years of at least £3,000 in total, would be able to claim back £3,000 from HMRC. So whilst the interest paid by Chelwood Community Energy would be based on a £10,000 investment, from the investor’s point of view the net investment is only £7,000.
We will be able to apply for investors’ EIS 3 certificates approximately four months after the Chelwood solar scheme starts generating electricity, which was late December 2015. Therefore we expect to be able to apply towards the end of April 2016. We have been told by HMRC that there is a backlog in applications so we would not expect the certificates to be issued to us before the end of May. Once we receive the certificates we will complete them (by hand!) and send them to you as soon as possible thereafter
Tax relief can be claimed in the tax year the EIS 3 certificate is issued or can be carried back to a previous tax year. For further details contact your financial advisor or visit the HMRC website.
More detailed information
Under the terms of the Enterprise Investment Scheme there are two main conditions to be satisfied before investors can claim income tax relief:
1) The company has to be accepted by HMRC as a qualifying company
We have already obtained conditional approval from HMRC before commencing the Share Offer. This involved explaining the structure of Chelwood Community Energy, its intentions and its proposals for making a share issue. After the company has been trading for at least four months it will send a form EIS 1 to HMRC reporting that its conditions have been complied with and providing the details of shareholders who have subscribed for shares. Once HMRC is satisfied it will authorise the company to issue form EIS 3 to each shareholder. These forms are essentially certificates confirming the amount invested in an EIS-qualifying company.
2) The member needs to demonstrate to HMRC that they are a qualifying individual
In general terms this means that the investor is an individual registered for tax in the UK. If the investor normally completes an income tax return there is a specific section on the form to enter details of EIS relief to be claimed. If the investor does not normally complete a tax return, it will be necessary to complete one. It is not typically necessary to send the form EIS 3 to HMRC, but it should be kept in a safe place in case HMRC request evidence of the investment.
EIS tax reliefs available:
- Income tax relief is available at up 30% of the sum invested. The tax can be reclaimed against tax paid in the tax year the shares were purchased or the previous tax year. The tax relief is restricted to the amount of tax the tax payer has paid in the relevant years. If you have paid little or no tax you will receive little or no tax relief. Shares must be held for at least three years or this tax relief will be withdrawn by HMRC.
- Once the shares have been held for at least two years they are designated as ‘business property’ for the purposes of inheritance tax. This means that they are 100% exempt from IHT.
- Capital gains tax deferral. If the investor has a capital gains tax liability, this can be deferred by reinvesting an equivalent sum in these shares. In effect, the CGT liability is deferred until the shares are cashed in.
Although it is the intention that the Society’s activities should qualify under the EIS, there is no guarantee that formal EIS claims will be agreed or such agreement will not subsequently be withdrawn and in those circumstances subscription monies will not be returned to Members. Returns to Members would be lower in the event that the Society fails to obtain EIS tax relief or that it is subsequently withdrawn, in which case the EIS tax reliefs referred to above would not be granted. No guarantee can be given that all investments will qualify, or continue to qualify, for EIS tax reliefs. The Society does not guarantee the availability of any form of relief under the EIS to any particular subscriber as this may depend on an individual’s personal circumstances. Members are advised to take their own taxation advice.