ACCA Advanced Taxation (ATX) Practice Exam

Which of the following is a shared characteristic between EIS and SEIS schemes?

1. Investment in multiple companies

2. High level of risk due to individual company investment

3. Guaranteed returns on investment

4. Minimal income tax relief

The correct answer is: High level of risk due to individual company investment

The shared characteristic between the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) is the high level of risk due to individual company investment. Both schemes are designed to encourage investment in smaller, high-risk companies, often at the startup stage or in their early development. Investors in EIS and SEIS are typically investing in companies that may not have established business models, solid customer bases, or proven track records of success. As a result, these investments inherently carry a high risk of loss, given the challenges or uncertainties faced by new or small enterprises. This characteristic is a critical factor for potential investors to consider, as the schemes are deliberately structured to support investment in higher-risk ventures with the potential for significant returns, albeit with commensurate risks. Other options do not align with the core features of the EIS and SEIS schemes. For instance, neither scheme offers guaranteed returns on investment, as such guarantees would undermine the risk-taking nature of these investments and contradict the very premise of fostering entrepreneurial activities. Similarly, the idea of minimal income tax relief does not accurately reflect either scheme; both EIS and SEIS offer substantial tax incentives to encourage investors to assume the risks associated with these investments, thereby providing significant income