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Enterprise Investment Scheme (EIS)

Invest up to £1,000,000 a year under current rules in new shares in EIS-qualifying companies to benefit from Income Tax relief at 30% of the amount invested.

EIS has been in place since 1994 and since it was introduced the rules have changed several times. The following description of the rules is as they stood immediately following the enactment of Finance Act 2018 with effect from 15 March 2018. This is a simplified summary and doesn’t go into all the detail. For more information and before you contact us, we suggest you read HMRC’s published guidance here.

EIS for Investors

Under current rules you can invest up to £1m a year in new shares in EIS-qualifying companies to benefit from  Income Tax relief at 30% of the amount invested. You must hold the shares for a qualifying period of at least 3 years, starting from the date of the investment or the date the company begins trade if later.

After the qualifying period you may:

  • Benefit from Capital Gains tax disposal relief on any shares disposed of at a profit.
  •  Offset any losses on disposal of the shares, either against capital gains or against income.

You may not be connected with the company by employment, must not have more than a 30% stake, and are subject to some anti-abuse rules. If you already have non EIS shares in the company, you may not qualify for EIS tax relief for new shares.

You can also defer an existing Capital Gains Tax charge if you re-invest the gain in EIS-qualifying shares.

Before you can claim most of these reliefs, HMRC first has to certify that the company invested in, and the share issue, meet all the requirements. Some of the tests have to be met throughout the 3 year qualifying period for the shares, or HMRC will recover some or all of the tax relief.

EIS for Companies

To be eligible for EIS investment, a company…

  • Must have fewer than 250 employees at the time of investment (or less than 500 for a ‘knowledge intensive’ company).
  • Must have no more than £15m in assets at the time of the investment.
  • Must not be quoted on a recognised stock exchange.
  • Must not be controlled by another company.
  • Generally its trade must not be more than seven years old at the time of the first EIS investment (ten years for a ‘knowledge intensive’ company).

The above rules apply to the group if the company is part of a larger group.

Shares issued under EIS must be ordinary non-redeemable shares, with no preferential rights to assets in a winding up and limitations on preferential rights to income. Additionally, a company must not raise more than £5m finance in any 12 month period (unless it is a ‘knowledge-intensive company which, from 6 April 2018, can raise £10m in a 12 month period) or a total of £12m through any combination of EIS and Venture Capital Trust investment (and certain other publicly funded support). For a ‘knowledge intensive’ company, the total lifetime funding should not exceed £20m.

Money raised through EIS must be used within two years for a qualifying trading activity (including preparations for trade) or for research and development intended to benefit such a trade. All EIS investments made on or after 15 March 2018 must meet the new ‘Risk to capital’ conditions.

Most trades qualify, but some don’t. See HMRC’s website for a full list of excluded activities.

How we can help

We can advise on eligibility and can liaise with HMRC on your behalf. We can apply to HMRC in advance of the company issuing shares, for a written opinion as to whether a proposed investment would be likely to meet the requirements (usually known as “advance assurance”).

Once a company has had investment, we can make the statutory approval application to HMRC.

We can advise you if you’re having problems with HMRC in relation to EIS.

We can advise investment fund managers on investments to be made via an EIS Fund, either approved or unapproved. This can include reviewing information memoranda and prospectuses to ensure accurate description of the tax treatment of investments.