MVL or EIS ?

[LimitedMan]

Hi,

From previous posts you will gather that have stopped contracting after 20 years and gone permanent, was planning to go MVL route and all looked good and spoke to couple of providers (MVL online & Nixon Williams) and then engaged accountant to start process of final accounts, VAT, etc and she said recently been to seminar on EIS and said might be a better route than MVL. Didn't provide many more details and kind of left me to it on the research side and struggling to see how better than simple insolvency and everything taxed at capital gain at 10% - am I missing something - be good to get some other peoples views as whilst understand the MVL route really struggling on the EIS side ?

Many thanks,

Limited Man

[Darren at Fox-Bartfield]

EIS

We've set up a few EIS & SEIS but from the view of company's seeking investment and making more attractive to investors but not looked at from a company closure perspective.

It has it's place for the investor as well, carries risk but dependent on what you would like to do with the cash in the company. If you're looking to simply close and extract the funds then MVL would be the way to go, then if want to look at what you would like to do with the funds thereafter, perhaps think about other investments.

EIS/SEIS Link

[Maslins]

I'm a bit baffled as to my mind they're two entirely different things.

MVL is a way you can close a company down, often leading to final funds being taxed on you as capital gains.

EIS is basically a set of tax reliefs for investors in certain high risk companies, provided various criteria are met.

Wondering whether what may have been lost in Chinese whispers is perhaps they were saying you could invest some of the money received from the MVL into investments qualifying for EIS. By doing this you could potentially eliminate/further reduce the tax liability from the MVL.

[Crack Addick]

She may have meant something like the attached

Minimising CGT using EIS and Entrepreneurs’ relief - Bloomsbury Tax Online

I've always been vary of EIS's and prefer VCT's, as although you need to hold a VCT for 5 years vs 3 with an EIS, they are listed companies (like an IT) and the dividends are not taxed.

I'd looked at this and also the SEIS capital gains reinvestment relief tax break and personally will just pay the 10% ER.

[Darren at Fox-Bartfield]

EIS

The two are different beasts but can both be used as part of a bigger tax planning exercise.

There are increased risks with the EIS depending on the investment but each to be appraised on their own merits. We set one up last month for a company that was on Dragons Den, very interesting product and genuine directors but have seen others where the risk may not be as appealing for the potential return.

[LimitedMan]

Many thanks for replies so far, that link is very useful as I think that what was my accountant must have been driving at but not been able to find anything on it.

If I am reading it correctly does it mean that still have to pay the 10% but can defer it ? Also guess there is some risk involved in the underlying shares but believe there are EIS vehicles about that go for safer companies but only give you a small (3%) return on your money, they take the rest but also take the hit if there is a fall so you get a safe investment under what is normally considered a more risky umbrella but get to gain the tax benefits. Believe Octopus were offering such schems both EIS and VCT but semed to be closed to new investors.

To be honest if still have to pay the 10% albeit deferred - be great if someone more used to reading accounting literature could confirm - then just to be done tempted to stick with what seems a much simpler MVL route.

[Crack Addick]

Also guess there is some risk involved in the underlying shares but believe there are EIS vehicles about that go for safer companies but only give you a small (3%) return on your money, they take the rest but also take the hit if there is a fall so you get a safe investment under what is normally considered a more risky umbrella but get to gain the tax benefits. Believe Octopus were offering such schems both EIS and VCT but semed to be closed to new investors.

I'd say there is potentially a large amount of risk involved. That is one reason the Govt provides all of the tax breaks and in the case of the EIS Loss relief.

Check out the below

Octopus under fire over 50% losses in ‘lower risk’ EIS - Citywire

I'm not that familiar with EIS's. But in respect to VCT's if you google "Limited Life" or "Planned Exit" you will see the sort of scheme that you describe. Here the Investor is really just taking advantage of the Initial tax breaks and will be aiming to get all of their money back asap after the 5yr minimum holding period ends. However I've not familiar with schemes where the provider covers the losses.

Octopus aside , Puma and Downing provide these types of VCTs. What you normally find is that they have a VCT season (some have started raisng funds now) where the VCT's that want to raise funds (not all raise funds every year) will issue a prospectus for the fund raising.

If you go to any of the usual Online Platforms (HL, III, Clubfinace etc.) you can find more details. As with all investments always DYOR and never invest anything that you cannot afford to lose! Also the fees involved in these schemes can be bordering on the obscene.