Guide

Enterprise Investment Scheme (EIS)

Use EIS to raise up to £5 million by offering investors 30% income tax relief on their investment.

UK-wide

The Enterprise Investment Scheme (EIS) helps your company raise finance by offering tax reliefs to investors who buy new shares. It's one of the most generous venture capital schemes in the world, designed to encourage investment in higher-risk small and medium-sized companies.

Who can use EIS

Your company can use EIS if it meets these requirements:

  • UK permanent establishment: Must have a base in the UK
  • Not quoted: Cannot be trading on a recognised stock exchange
  • Independence: Cannot be controlled by another company

Qualifying trade requirement

Your company must conduct a qualifying trade on a commercial basis with a view to profit. Excluded activities (which cannot be more than 20% of your trade) include:

  • Dealing in goods (except ordinary wholesale/retail distribution)
  • Banking, insurance, money-lending, debt-factoring
  • Leasing activities including ships on charter
  • Property development
  • Legal or accountancy services
  • Running hotels, nursing homes, or residential care homes
  • Farming or market gardening

The application process

Step 1: Advance assurance (recommended)

Before issuing shares, apply to HMRC for advance assurance confirming your share issue will likely qualify. This gives investors confidence. Submit via the HMRC online form with:

  • Business plan and financial forecasts
  • Latest accounts
  • How investment will be used
  • Memorandum and articles of association
  • Register of members
  • Draft investor materials

Advance assurance approval rate (2024-25): 76%

Step 2: Issue shares

Once you have advance assurance (or choose to proceed without), issue shares to investors.

Step 3: Submit EIS1 compliance statement

After shares are issued, submit form EIS1 to HMRC confirming your company meets all conditions and will continue to do so for 3 years.

Step 4: Receive EIS2 authorisation

HMRC issues form EIS2 with a Unique Investment Reference number, authorising you to issue EIS3 certificates.

Step 5: Issue EIS3 certificates to investors

Investors cannot claim tax relief without their EIS3 certificate. Issue these promptly after receiving authorisation.

Timeline: Typically 12-18 months from advance assurance application to investors obtaining relief.

Compliance requirements

Your company must maintain qualifying conditions for at least 3 years after investment. Failure triggers clawback of investor tax relief.

You must notify HMRC within 60 days if:

  • Company ceases to meet scheme conditions
  • Company becomes quoted on a stock exchange
  • Company ceases carrying on a qualifying trade
  • Gross assets exceed limits
  • Annual or lifetime investment limits are exceeded

Clawback triggers

  • Share disposal within 3 years: Income tax relief wholly or partly withdrawn, gains become chargeable to CGT
  • Value received during 3-year period: Income tax relief reduced by amount of value received (dividends, loan repayments, etc.)

What investors look for

To attract EIS investment, your company should demonstrate:

  • Growth potential: Realistic but ambitious targets
  • Innovation or differentiation: Clear market advantage
  • Experienced management: Relevant sector expertise
  • Clear capital deployment plan: How investment will be used
  • Exit strategy: Trade sale or IPO within 5-7 years

Professional investors typically require board representation, information rights, anti-dilution protections, and tax indemnity if relief is withdrawn.

EIS funds vs direct investment

Direct investment: Full 30% relief, direct governance, higher risk but potentially higher returns, requires significant due diligence.

EIS funds: Same 30% relief, professional fund manager handles due diligence, portfolio diversification reduces company-specific risk, less direct control, suitable for passive investors.

  1. Check if your company qualifies

    Review employee count, gross assets, trading history, and excluded activities before approaching investors.

  2. Apply for advance assurance

    Submit your application to HMRC via the online form. Include complete documentation to avoid delays.

  3. Prepare investor materials

    Create a business plan, financial projections, and pitch deck that demonstrate growth potential and exit strategy.

  4. Submit EIS1 after share issue

    Complete the compliance statement confirming all conditions are met and will be maintained for 3 years.

  5. Issue EIS3 certificates promptly

    Investors cannot claim relief without their certificate. Issue these as soon as HMRC provides authorisation.

  6. Maintain records for 3 years

    Keep documentation demonstrating ongoing compliance with all scheme conditions.

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