Executive Summary
The Enterprise Investment Scheme (EIS) offers a powerful opportunity for early-stage businesses to attract investment while providing significant tax benefits to investors. Established in 1994, this government-backed initiative has become a cornerstone of UK business funding for startups and growing companies.
What is the Enterprise Investment Scheme?
The EIS is designed to help smaller, higher-risk companies raise finance by offering tax reliefs to individual investors who purchase new shares in these companies.
Key Benefits:
- For businesses: Access to up to £5 million annually and £12 million lifetime funding
- For investors: Tax reliefs including 30% income tax relief, capital gains tax exemption, and loss relief
At a Glance:
| Feature | Details |
|---|---|
| Annual investment limit | £5 million |
| Lifetime limit | £12 million |
| Minimum holding period | 3 years |
| Maximum age of business | 7 years (10 for knowledge-intensive) |
| Employee limit | 250 (500 for knowledge-intensive) |
Is Your Company Eligible for EIS?
Core Eligibility Criteria:
- Not listed on a major stock exchange (AIM and Aquis listings are acceptable)
- Independent (not under control of another company)
- UK-based with a permanent establishment
- Gross assets not exceeding £15m before investment or £16m after
- Fewer than 250 full-time employees (or equivalent)
- Trading for less than 7 years before first EIS investment
Important Requirements:
- Funds must be used for growth and development
- Cannot be used to acquire existing businesses or shares
- Eligibility conditions must be maintained for 3 years
- Maximum of £5m raised from state aid risk finance in any 12-month period
Knowledge-Intensive Companies: Special Provisions
Knowledge-intensive companies receive enhanced benefits under EIS. Your company qualifies as knowledge-intensive if:
✓ It employs fewer than 500 people
✓ It’s developing intellectual property expected to form the majority of business within 10 years
✓ At least 20% of employees have relevant Masters degrees and are engaged in research
Enhanced Benefits:
- Higher lifetime funding limit: £20 million (vs. standard £12 million)
- Extended age limit: 10 years from first commercial sale (vs. standard 7 years)
- Higher annual investment limit: £10 million
Eligible Business Activities
Most trading activities qualify for EIS, with notable exceptions including:
❌ Property development or dealing
❌ Financial activities (banking, insurance, etc.)
❌ Legal or accounting services
❌ Energy generation
❌ Farming or market gardening
❌ Operating hotels or nursing homes
❌ Coal and steel production
Note: A company can conduct some excluded activities as long as they represent less than 20% of overall business operations.
How to Apply for EIS: Step-by-Step Process
1. Obtain Advance Assurance (Recommended)
Contact HMRC before issuing shares to confirm eligibility. This provides confidence to potential investors.
2. Issue Your Shares
Ensure compliance with all EIS requirements when structuring your share offering.
3. Submit a Compliance Statement (EIS1)
This can be done by:
- Company Secretary
- Director
- Authorized Agent
4. Required Documentation:
- Business plan and financial forecasts
- Recent accounts
- Explanation of risk to capital condition
- Trading activity details
- Memorandum and articles of association
- Information provided to investors
- Details of previous investments
- Any relevant shareholder agreements
5. Timing Requirements:
- Submit after 4 months of qualifying business activity
- Must be within 2 years of this date or 2 years of tax year end in which shares were issued
Combining EIS with Other Funding Schemes
EIS can be used alongside other funding sources, but remember these limits:
- Maximum £5 million total in any 12-month period from all state aid risk finance sources
- Lifetime limit of £12 million (£20 million for knowledge-intensive companies)
Compatible schemes include:
- Venture Capital Trusts (VCT)
- Seed Enterprise Investment Scheme (SEIS)
- Social Investment Tax Relief (SITR)
- Other state aid approved under risk finance guidelines
Important Note: Once you’ve issued EIS shares, you cannot issue SEIS shares afterward.
Case Study: EIS Success Story
Company: TechInnovate Ltd
Sector: Healthcare Technology
Funding raised: £3.5 million through EIS
Outcome: Expanded from 8 to 55 employees in 3 years, developed 2 patented technologies
“EIS funding was transformative for our business. The tax incentives made it significantly easier to attract angel investors at our critical growth stage.” — Sarah Johnson, CEO
Common Pitfalls to Avoid
- Not maintaining eligibility conditions for the full 3-year period
- Using funds inappropriately (e.g., for acquisitions rather than growth)
- Exceeding the 20% threshold for excluded activities
- Missing documentation when applying for compliance certification
- Failing to consult with specialists on complex eligibility questions
Next Steps for Your Business
- Evaluate your eligibility using the criteria provided
- Consult with a financial advisor specializing in venture capital schemes
- Prepare detailed documentation for advance assurance
- Develop a compelling investment proposition highlighting the EIS benefits
- Submit your advance assurance application to HMRC
Resources and Further Information
- HMRC’s Venture Capital Schemes Manual
- British Business Bank Finance Hub
- EIS Association: www.eisa.org.uk
This guide provides general information only and should not be considered financial, tax, or legal advice. Always consult with qualified professionals before making decisions based on this information.
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