EIS – Fees transparency
- All fees should be clearly stated, when they are payable, and by whom.
- Fees charged to companies matter as much as fees to investors. Both have an impact on the final outcome for investors, and it is misleading to say that fees charged to companies means that it is ‘fee free’ for investors. All fees charged to investee companies should be disclosed. For example, fees for services that are needed or mandatory on the investee company, such as consulting or monitoring services, should be disclosed.
- There should be clarity on whether fees are fixed or variable. For example, where monitoring fees might depend on the size of the company. Where appropriate a range can be given, but it should be clear as to the basis being used to decide on the final amount.
- It should be clear as to how long fees are payable for, and in what circumstances this can change.
- There needs to be clarity on which elements are subject to VAT and which are not. Just to say that VAT is charged as applicable is not sufficient and each fee should clearly have its VAT status given. The net amount of an investment that will be used to purchase shares should be clearly stated.
- There should be clarity on success fees, and whether these are calculated on returns that include tax benefits, or not. It should be clear whether these are calculated on a per company or fund basis. Disclosure should include the amount of any options or warrants that the manager may receive, as well as any other investment the manager or team may make that is on different terms from those by their customers.
The overall guiding principle is that investors should be able to readily compare fees openly and between different companies, and know that all fees are declared
All fees should be clearly stated. An example is below
Initial and regular fees
• Initial fees (advised investors) – 1% (inclusive of VAT)
• Annual management charge – 0.75% (inclusive of VAT)
• Arrangement fees (charged to companies) – 5% (no VAT)
• Monitoring fees (charged to company) – The higher of 1.25% of funds invested or £6k + VAT
Over 5 years these fees are around 15.75%
Amount qualifying for tax relief: 96%
The hurdle is 120% of the subscription amount
We charge 20% (inclusive of VAT) on anything above this at fund level ( not individual companies)
It is calculated net of all other fees, and without including any tax relief to the investor.
The performance fee is based on cash returned to the investor.
Exit arrangement fees
We have the right to charge up to 1 year’s worth of monitoring fees on exit for our work on acquisition.
In practice this is rarely charged.
There are no other fees.