The 30 day period
The rules consider the amount of relevant investments made over a 30 day period. The 30 day period provides some flexibility for a company that is assembling a number of relevant investments from different investors where it may not be possible to process all the investments on the same day.
For a specific relevant investment (A) to be eligible for EIS/VCT, the relevant investment A must be made within a 30 day period during which the total amount of all relevant investments made in the company is at least 50% of the company’s average annual turnover amount (see next section). Earlier investors will have no certainty that their investment will qualify as an EIS/VCT investment until later investors have made their investments. It is up to the company and its prospective investors to agree the timing of investments.
Company A made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £750,000 to finance entry to a new geographical market. Company A’s average annual turnover is £1 million. There are three potential investors, individuals B, C and D who all wish to claim EIS income tax relief.
If individual B invests £150,000 on day 1 at least £350,000 must then be invested by individuals C or D by day 30 in order for the investment to qualify for relief (£150,000 plus £350,000 will equal £500,000 which would match 50% of the average turnover). This will also mean that the investments made by C or D are also qualifying.
As before, company A made its first commercial sale in 2000 and has never received a relevant investment. It is seeking investments of £750,000 to finance entry to a new geographical market. Company A’s average annual turnover is £1 million. The three potential investors this time are: individual B, individual C and company E.
Individual B invests £150,000 on day 1. Company E invests £350,000 on day 25. In order for individual investor B’s investment to qualify for EIS relief, individual C must invest at least £350,000 by day 30 (and this would also make individual C’s investment qualifying). The amount invested by company E is disregarded because its investment is not a relevant investment.