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Tax - Reporting and relief

  • Updated

Disclaimer: This is not tax advice. Please seek independent tax advice.

The tax-related information provided here and anywhere else on Odin’s website is for informational purposes only and should not be considered as tax advice. We recommend consulting a qualified tax advisor to understand how the topics discussed may apply to your specific situation.

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EIS and SEIS

The Enterprise Investment Scheme and Seed Enterprise Investment Scheme are UK government schemes which incentivise investment into UK companies via tax relief on both the initial investment and capital gains related to the investment. Claims can either be submitted for the current tax year, or backdated into a previous tax year (up to a certain limit). You can read more here about how the schemes work, what sorts of companies qualify and the level of relief available.

If you’ve specified a deal as being eligible for EIS, SEIS, or both, and the investee company has provided Odin with Advanced Assurance of this during the deal review process, investors should be able to claim relief via the relevant scheme once the company has completed the relevant paperwork and shared documents with us after the deal has closed.

Ordinarily, S/EIS relief is the responsibility of the investee company. Odin can generate the S/EIS3 certificates for your investors and distribute them correctly, but this will carry an additional cost.

If you are making use of Odin’s rolling close facility, please note that you won’t be able to access the information needed for S/EIS submissions until the deal has fully closed on Odin.

We’ve outlined the process for EIS and SEIS relief below:

  • For priced rounds (equity investments), as soon as the deal has fully closed on Odin, you’ll be able to download an investor list via your deal admin dashboard. This will be generated in a CSV file format, but you can convert it later or import it to Google Sheets. The investor list has been designed specifically for S/EIS submissions, in that it includes all information required for S/EIS1 form submission.
    • Only your investors who have invested as individuals (not through business entities) in Column N and have provided a resident address in ‘GB’ (Columns H-L) will be eligible for either form of relief. If any investors don’t comply, you’ll have to delete those rows in the sheet.
    • The final column of the sheet shows how much of each investor’s final investment amount is eligible for S/EIS relief. If your investors committed and transferred in exact multiples of the share price, this should be the same figure as their final investment amount (Column F). If they didn’t it’s likely there’ll be a small delta, as Odin has to round those shares down to the nearest whole number. Any application that isn’t for whole shares will likely be rejected so it’s important to double-check these figures.
  • Share the final investor list with the investee company. The investee company will then need to complete the S/EIS1 form and submit it to HMRC. This form provides HMRC with details about the company, the investment round, and the investors participating in the scheme.
    • The investee company will also, as part of this submission, share their Articles of Association, the investment agreement, and any other relevant paperwork specified by HMRC.
  • The investee company will then have to wait for HMRC to review and approve their application. If everything is in order, they will issue the investee company with an S/EIS compliance certificate, known as the S/EIS2 UIR.
  • Once this has been received, the next step is to provide each eligible investor with an S/EIS3 certificate, which provides the details they need for their tax return.
    • The default option here is for the investee company to complete the form for each investor in order to obtain their S/EIS3 certificates. They would then have to distribute these certificates once all have been received, and provide the investors with the necessary information about how to claim relief on their next tax return (or how to backdate their claim, if applicable).
    • Odin can also generate and distribute S/EIS3 certificates, provided the relevant fee has been paid.
    • Once Odin has completed all S/EIS3 certificates according to the correct investor information, our team will then issue the certificates to your investors via mail merge.
    • Once the certificates have been distributed, Odin will securely store them internally and our Deal Operations team will email you to confirm that the process has been completed.
  • You’ll have to advise the investee company to keep accurate records of the S/EIS application process, in case of any future audits. This includes copies of all forms, certificates and correspondence with HMRC. Odin will also keep records of S/EIS3 certificates if it generated and distributed them.
  • For ASA (advanced subscription agreement) investments (and SeedFASTs, which are forms of ASA), you will need to wait for the ASA to convert into shares before the investee company can claim tax relief. Once the conversion event happens, you’ll need to export the investor list from Odin, add the share price from the conversion document, and use this information to calculate the final number of shares per investor, rounded down to the nearest whole share, which the company will need to use for its application. If you have questions about this, just get in touch with us.
  • If your syndicate investors have questions, please refer them to the Syndicate Investor Guide, where we elaborate on the process from their perspective. The following two points are the most common queries we see:
    • Where is my S/EIS certificate? Please ask the Syndicate Lead about this, since typically Odin is not involved in S/EIS certificate issuance. If Odin is handling issuance of certificates, we are dependent on how soon the investee company provides the relevant documents in order for the S/EIS3 certificates to be generated. As soon as we receive the relevant information, we typically handle issuance in a few days. However, we have no control over how quickly the investee company obtains and distributes these, and would advise the investor defer to them.
    • The tax year is approaching and I’m worried I can’t submit my claim in time. If Odin is handling issuance of certificates, we are dependent on how soon the investee company provides the relevant documents in order for the S/EIS3 certificates to be generated. As soon as we receive the relevant information, we typically handle issuance in a few days. However, we have no control over how quickly the investee company obtains and distributes these, and would advise the investor defer to them. If it’s unlikely that the certificates will be generated and distributed to investors before the tax year end deadline, please advise your investors that their relief claim can typically be backdated into a previous tax year anyway. If they have further concerns, we recommend that they seek independent tax advice.

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US Investor Reporting (PFIC/FATCA)

All Odin Bare Trust SPV entities are considered Passive Foreign Investment Companies (PFICs) under the Foreign Account Tax Compliance Act (FATCA). FATCA requires Foreign Financial Institutions to report information about financial accounts held by US taxpayers, or by foreign entities in which US taxpayers hold a substantial ownership interest, directly to the Internal Revenue Service (IRS).

Odin’s US advisors, Bennett Thrasher, have provided guidance on the additional documentation required and process US investors must follow so that there are no negative tax implications for investing via an FIC. As such, Odin can accept funds from US investors without issues. Please note, however, that Odin does not provide tax advice, and if you or your investors have any concerns we’d recommend speaking to qualified accountants and enquiring independently about PFIC taxation.

US investors are either investors who have provided Odin with a registered address in the US during their account setup, or investors who have otherwise informed Odin of their US taxpayer status. This includes dual tax residence.

Please note that form K1 is not applicable to PFICs, and Odin does not support with Blue Sky filings, state by state tax requirements or similar processes for our UK bare trust structures.

Odin’s process for ensuring tax compliance for US investors is as follows:

  • Once per year, in the run-up to the end of March (typically by the end of January to allow investors sufficient time to handle filings), Odin provides PFIC documentation to U.S. investors. Investors can use this information in an exit event to make a Qualified Electing Fund (QEF) special election and report annual earnings under the QEF regime (instead of being subject to the Excess Distribution Regime, which incurs additional taxation). This ensures no additional tax liability on their investments held via Odin vehicles.
  • US investors have additional reporting requirements regarding their investment in a PFIC as part of the QEF election. The guidance we have received is that US investors must file Form 8621.
  • Additionally, if the value of an investor’s investments is greater than $50k, (or greater than $100k if they are married and file jointly with their spouse), they will likely also have to submit Form 8938. You can find more guidance here.
  • Those investors required to file Form 8938 must do so annually as part of their personal tax returns. Since the PFIC has no income in Odin's case (no dividends are paid), investors may choose only to file form 8621 once an exit event occurs, in order to make a QEF election on the capital gain. However, we advise investors to take independent tax advice on this matter.
  • Odin provides the information needed for all of these filings, but don’t handle the form completion for the user. They need to fill out the forms themselves with the data we provide.
  • Odin does not charge your US investors any ongoing fees for any of this, but please note that Odin charges a one off fee per US investor involved in an SPV.

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Ireland: EIIS

We can offer some support on Ireland’s EIIS scheme, which works in a similar way to the UK S/EIS scheme.

Irish investors can claim EIIS on investment in Irish companies, even if these happen via a UK bare trust. We have received advice on this from BDO Ireland.

For further information, reach out to our support team on hello@joinodin.com.

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Tax transparency and tax liabilities

Because Odin typically uses a United Kingdom Bare Trust structure to administer investments, there is complete tax transparency. This means that in practice, there are no geographic restrictions around where investors can invest from, or the companies they can invest into. All the structures we offer are completely tax transparent unless otherwise stated, and do not generally create tax liability in the jurisdiction where the entity is domiciled. However, as always, we cannot offer tax advice and recommend that you seek this independently.

However, typically your investors will be liable to pay tax wherever they were tax resident upon a liquidity event. Investors do not have tax liability in the UK.

For any non-UK government-sponsored tax relief scheme operated in the investor’s home country, if investors need to process a claim for tax relief based on these schemes, Odin’s advice is to seek advice from a qualified accountant in the country they’re claiming the relief in.

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How tax works on carried interest

We advise investors to seek independent tax advice with respect to the local tax treatment of their investments on the Odin platform. The below is not tax advice and cannot be used as such - it is for informational purposes only.

We have received guidance indicating that UK investors are likely to be liable for income tax on carried interest. This is because Odin Bare Trust SPVs are not collective investment schemes, are not regulated Alternative Investment Fund Management (AIFM) structures, and as such do not benefit from the carve outs of Disguised Investment Management Fees (DIMF) rules mentioned below.

However, if structures are run as AIFMs, carried interest returns in the UK may benefit from different treatments. Effectively, sums allocated to an individual by way of carried interested can be treated, for tax purposes, as if the recipient had personally carried out the underlying transaction that gave rise to the income. The carried interest Income Tax rules provide, broadly, that any sum of carried interest arising from a fund is eligible for capital gains tax treatment only if the investment vehicle holds investments, on average, for at least 40 months. Partial CGT treatment is available where the average holding period is between 36-40 months. Where the average holding period is below three years, all sums of carried interest arising to the individual, however structured, are charged to tax and NICs as trading profits.

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