Royal Flush Productions Ltd has been granted EIS Advance Assurance

Royal Flush Productions Ltd has been granted EIS Advance Assurance. This means RFP has gained provisional confirmation from HMRC that the investment would meet the Enterprise Investment Scheme (EIS) conditions for investors. This gives potential investors comfort that HMRC is satisfied that from the information it has, an investment in RFP would qualify for Tax Relief under the Enterprise Investment Scheme.

How it works

When you invest in an EIS-eligible company, such as Royal Flush Productions, you may receive tax benefits in the following ways:

For your convenience, these examples are all worked out at a base investment in RoyalFlush Productions Ltd of £100,000

EIS Income Tax Relief: You can claim back up to 30% of the value of your investment in the form of income tax relief. Therefore if you invest £100,000 you can apply for income tax relief of £30,000.

EIS Capital Gains Tax Relief Disposal Relief: You must hold the shares for at least three years, and then all gains you accrue on those shares may be exempt from capital gains tax when you sell them. Therefore, if you buy your shares for £100,000 and in three years, they are worth £300,000, you will not have to pay capital gains tax on the £200,000 income if you decide to sell your shares. Please note this is an example only, and your investment value can also decrease over time due to start-up equity being a high-risk asset class.

Deferral Relief: You will not have to pay capital gains tax until later if you dispose of an asset (any asset) and use the profit you made on that asset to invest in shares in our EIS qualifying company. You will only have to pay any pre-existing capital gains tax liability when you dispose of the EIS shares you have purchased.

EIS Loss Relief:

If the business performs poorly and you lose money on the investment, you may claim loss relief.

The loss relief you can claim is equivalent to the highest income tax rate you pay. So if you pay income tax at a rate of 45%, you can claim up to 45% of your net loss in income tax relief.

For example, if you make a £100,000 investment and the business fails, meaning your investment is no longer worth anything, you could claim loss relief. Firstly you would have claimed the 30% income tax relief (£30,000 in this example). You can then claim loss relief on the remaining £70,000 of an amount equal to your income tax bracket – in this scenario, 45% or £31,500, meaning your total loss is only £38,500.

Applying tax relief to a previous year (carry-back):

You can treat some or all of the EIS shares you purchase as being issued in the preceding tax year, as long as you have not already reached the limit for the value of EIS shares purchased (£1,000,000) in that year.

If, for example, you invest £100,000 in our EIS-eligible company in the 2022-23 tax year, your income tax relief would be £30,000 (30% of £100,000). You can apply to have that £30,000 carried back to the previous tax year (2021- 2022) and relieved against your tax in that year, as long as you have not acquired more than £1,000,000 worth of EIS shares in that year.

EIS Inheritance Tax Relief:

You can generally claim Inheritance Tax relief of 100% after two years of holding the EIS shares. This means that any liability for Inheritance Tax is reduced or eliminated in respect of such shares. However, this relief is unavailable if the shares are listed on a recognised stock exchange.

To qualify for these tax benefits, investors must abide by the following rules:

• You can only invest up to £1,000,000 in aggregate, in ours or any number of qualifying companies in each tax year.
• You must hold the shares for a minimum of three years. If you sell or gift the shares within the three year period, you will be subject to relief clawback.
• You cannot carry forward your EIS tax relief.
• You must be a UK taxpayer.
• You cannot be connected to the EIS company.
• (the meaning of connected being: (i) an employee (ii) partner (iii) a paid director)
• You must be buying newly issued shares and not ones already issued.

Are you looking for an idea of how much you could benefit from EIS? Here are some examples of how EIS tax relief may increase your gains (and decrease your losses) from investments (we do not make allowances for interest or inflation).

Example 1:

EIS tax relief – should your investment increase in value:

The business you invest in performs well and triples in value over the course of 3 years, after which you sell your shares:

• Your initial investment = £20,000
• Income tax relief (30% of your investment) = £6,000
• Your investment returns (after 3 years) = £60,000
• Capital gains tax (on the sale of shares) = £0
• Total returns = £66,000

In this example, you invested £20,000 in an EIS-eligible company. You could therefore claim income tax relief on 30% of the amount of your investment, saving you £6,000. When you sell your shares after three years, you benefit from the gain in your investment and have to pay no capital gains tax.

To Example 2:

EIS tax relief – should your investment stay at the same value:

The business you invest in stays the same value over the course of 3 years, after which you sell your shares:

• Your initial investment = £20,000
• Income tax relief (30% of your investment) = £6,000
• Your investment returns (after 3 years) = £20,000
• Capital gains tax (on the sale of shares) = £0
• Total returns = £26,000

In this example, although your investment did not increase in value, you still had a £6,000 gain from the income tax relief on your investment.

Example 3:

EIS tax relief should your investment decrease in value:

The business you invest in performs poorly and winds down, meaning the value of your shares goes to zero. Your initial investment = £20,000

Income tax relief (30% of your investment) = £6,000 At risk capital = £14,000

Loss relief (if paying income tax at 45%) = £6,300 Total returns = £12,300

In this example, instead of losing the total amount of your £20,000 investment, EIS tax relief means your loss is reduced to £7,700 due to both the income tax relief on your initial investment (£6,000) and the loss relief (£6,300).

Although Royal Flush Productions Ltd has provided details, you may need to help you make an informed decision. We advise all potential investors to seek independent financial advice from an authorised person regarding investing in RFP or any EIS-eligible company.