Enterprise Investment Scheme (EIS)

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 has a permanent establishment in the UK, is not trading on a recognised stock exchange, and is not 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

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

HMRC approved 76% of advance assurance applications in 2024-25.

Issue shares

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

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.

Receive EIS2 authorisation

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

Issue EIS3 certificates to investors

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

It typically takes 12 to 18 months from advance assurance application to investors getting their 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

If an investor disposes of their shares within 3 years, their income tax relief is wholly or partly withdrawn and any gain becomes chargeable to Capital Gains Tax. If an investor receives value from the company during the 3 years, such as a loan repayment, their income tax relief is reduced by the amount received.

What investors look for

To attract EIS investment, show realistic but ambitious growth targets, a clear advantage in your market, a management team with relevant sector experience, a clear plan for how you will use the money, and a likely exit, such as a trade sale or flotation, within 5 to 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

Investors who buy your shares directly get the full relief and a say in how the company is run, but take on more risk and have to do their own due diligence. Investors in an EIS fund get the same relief, but a fund manager does the due diligence and spreads the money across several companies. They have less direct control, so funds suit passive investors.