ACCA Advanced Taxation (ATX) Practice Exam

What distinguishes the EIS from the SEIS in terms of individual qualifications?

1. Ownership limit of shares

2. Requirement to be independent of the company prior to share issue

3. Amount invested in shares

4. Tax relief available

The correct answer is: Requirement to be independent of the company prior to share issue

The distinction between the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) regarding individual qualifications is primarily centered around the requirement for an investor to be independent of the company prior to making a share issue. For the SEIS, investors must not be connected with the company at the time of the share subscription. This means that they should not have been an employee, director, or hold any significant stake in the company in order to qualify for the attractive tax reliefs that the SEIS offers. This independence requirement helps to ensure that the scheme supports new and unestablished companies, providing them with necessary funding from individuals who have no prior connection to the business. In contrast, while EIS shares also need to provide significant benefits, there is more flexibility regarding the relationship between the investor and the company, allowing those with previous connections, such as former employees or directors, to still invest and benefit from the tax reliefs available under the EIS. Thus, the focus on pre-investment independence in the SEIS is a key factor that distinguishes it from the EIS, reinforcing the objective of fostering early-stage companies. The other factors such as ownership limits, investment amounts, and the tax relief available do play significant roles