What is EIS (Enterprise Investment Scheme)?

Whether you’re looking to invest in a small business or you’re a small business owner, you may have heard of the Enterprise Investment Scheme. But If you’re wondering ‘What is EIS’, read on!

The Enterprise Investment Scheme (or EIS) is an incentive set up by the UK government to encourage individuals to invest in small businesses.

Under EIS, a company can raise up to £5 million a year, and £12 million in the company’s lifetime (unless it’s a knowledge intensive company).

Who can use EIS?

Not all companies can use the EIS scheme, (sorry ASOS!) – there are a few requirements to receive investment:

• Established in the United Kingdom 🇬🇧
• Carries out a qualifying trade
• Has less than £15 million in gross assets
• Has less than 250 full-time employees
• Isn’t trading on a recognised stock exchange
• Doesn’t have more than 50% of shares owned by another company
• Doesn’t expect to close in the foreseeable future, or after completing all projects
• The company’s first commercial sale was under 7 years ago

HMRC offers a service that lets you know whether an investment will meet the conditions of the EIS. This is called advance assurance. 

What are the benefits of EIS?

The EIS is beneficial for both small companies and investors. For small businesses, the EIS can:

• Provide enough capital to support growth 💰
• Provide more credibility

Bear in mind, the money must be spent within two years on qualifying business activities, this includes:

• A qualifying trade
• Preparation to carry out a trade
• Research and development for a qualifying trade

This doesn’t include buying all or part of another business.

Investors can make great profit from investing in companies altogether, but the EIS in particular provides great benefits in the form of EIS tax reliefs:

• A whopping 30% Income Tax Relief 
• Capital Gains Deferral Relief

• 100% Capital Gains Tax Exemptions when you exit your investment
• 100% Loss Relief when you exit your investment
• 100% Inheritance Tax Relief (if the investor passes after 2 years)

🚨 FYI: Shares must be sold 3 years or after and you must have claimed some Income Tax Relief to qualify for the Capital Gains Tax Exemptions. 🚨

Am I eligible to invest in EIS companies?

Potentially! To be eligible, you or your associates must:

• Invest in EIS-eligible companies (a given, but it doesn’t hurt to double check!)
• Be a UK taxpayer (so you can pay UK Income Tax and be eligible for Income Tax relief)
• Not have more than a 30% share of the company (or any controlling interest)
• Pay for the shares in full, upfront, and by the date of issue
• Not be paid employees, partners, or directors of the company
• Keep the shares for at least 3 years before selling
• Only invest up to £1 million (or £2 million if £1 million is already invested in knowledge-intensive companies) in EIS companies within each tax year

How do I invest in EIS companies?

Investing in EIS companies can be a great opportunity for individual investors. If you want to get started investing in EIS companies, you can easily find the eligible companies using these sites:

• Crowdcube
• Seedrs
• Wealth Club
• SyndicateRoom

The maximum amount you can invest is £1,000,000.

What other investment schemes are available?

If you’re not 100% sold on the EIS, that’s ok! Back in 1994, the UK government set up multiple investment schemes to help support the growth of small businesses, and the EIS is just one of those schemes. 

The others are:

• The Venture Capital Trust (VCT)
• The Seed Enterprise Investment Scheme (SEIS)
• The Social Investment Tax Relief (SITR)

All four schemes are authorised and regulated by the financial conduct authority.

Can TaxScouts help me apply for EIS tax reliefs?

You bet we can! 

Here at TaxScouts, our accountants can file your self assessment tax return in as little as 48 hours – EIS tax reliefs included! 

Once you’ve provided us with the relevant information, we will apply for all the tax reliefs you are entitled to! Find out more here.