Use the Enterprise Investment Scheme (EIS) to raise money for research, development or innovation

As a knowledge-intensive company, you may be able to attract up to £20 million of investment in the lifetime of your company with EIS.

How the scheme works

You can apply for the Enterprise Investment Scheme (EIS) as a knowledge-intensive company if your company is carrying out research, development or innovation at the time you issue your shares.

Follow the usual EIS rules if:

  • you’re not raising money for research and development
  • you’re raising money for research and development but either:
    • haven’t already raised £12 million over the lifetime of your company
    • are within 7 years of your first commercial sale

If you meet the additional conditions for knowledge-intensive companies, you can raise:

  • up to £20 million of investment in the lifetime of your company and any subsidiaries (over the usual £12 million limit for EIS)
  • money if your company (and any subsidiaries) received investment under a venture capital scheme within 10 years of your first commercial sale (instead of the the usual 7 year limit for EIS)

You can raise up to £5 million of investment per year. This also includes amounts received from other venture capital schemes.

You must follow the scheme rules so that your investors can claim and keep EIS tax reliefs relating to their shares.

Tax reliefs will be withheld or withdrawn from your investors if you don’t follow the rules of the scheme for at least 3 years after the investment is made.

What the money can be used for

The money raised by the new share issue must be:

  • used for research and development that’s expected to lead to a qualifying trade
  • spent within 2 years of the investment, or if later, the date you started trading
  • used to grow or develop your business

You can’t use the money raised to to buy all or part of another business.

Companies that can use the scheme

Your company can use the scheme if it:

  • is established in the UK
  • isn’t trading on a recognised stock exchange at the time of the share issue and doesn’t plan to do so (also known as an unquoted company)
  • doesn’t control another company other than qualifying subsidiaries
  • isn’t controlled by another company or doesn’t have more than 50% of its shares owned by another company

Your company, and any qualifying subsidiaries must not have gross assets worth more than £15 million before any shares are issued and not more than £16 million immediately afterwards.

To qualify as a knowledge-intensive company, you must meet additional conditions. Your company and any qualifying subsidiaries must:

  • have fewer than 500 full-time equivalent employees at the time the shares are issued
  • have spent an amount of your overall operating costs on research and development or innovation that is at least either:
    • 10% in each of the 3 years before the investment
    • 15% in any one of the 3 years before the investment
  • either:
    • be carrying out work to create intellectual property and you expect the majority of your company’s or group’s business will come from this within 10 years
    • have 20% of your employees carrying out research and development when you receive investment and for 3 years after - these employees must have a relevant Master’s or higher degree

Limits on money raised

Your company can’t raise more than £5 million in total in any 12-month period from:

Your company can’t raise more than £20 million from these sources in its lifetime. This includes any money received by any subsidiaries (or former subsidiaries) or businesses you’ve acquired.

Limits on the age of the company

You can receive investment under EIS as long as it’s within 10 years of your company’s first commercial sale. If you have any subsidiaries (or former subsidiaries) or businesses you’ve acquired - the date of the first commercial sale is the earliest for the group.

If you received investment in this period (under EIS, SEIS, SITR, VCT or state aid approved under the risk finance guidelines), you can use EIS to raise money for the same activity as long as you showed intent in your original business plan.

If you didn’t receive investment within the first 10 years, or now want to raise money for a different activity from a previous investment, you’ll have to show:

  • that the money is required to enter a completely new product market or a new geographic market
  • the money you’re seeking is at least 50% of the company’s average annual turnover for the last 5 years

Qualifying subsidiary companies

If your company owns or controls any other companies they need to be ‘qualifying subsidiaries’. This means:

  • your company must own more than 50% of the subsidiary’s shares
  • no one other than your company or one of its other qualifying subsidiaries can control this subsidiary
  • there must be no arrangements which would put someone else in control of this subsidiary

The subsidiary must be at least 90% owned by your company where either the:

  • business activity you’re going to spend the EIS investment on is to be carried out by the qualifying subsidiary
  • subsidiary’s business is mainly property or land management

When you issue shares

The shares you issue must be paid up in full, in cash, when they’re issued. Your company should have a way to accept payment before shares are issued.

Your shares for EIS investments must be full risk ordinary shares which:

  • aren’t redeemable
  • carry no special rights to your assets

The shares you issue can have limited preferential rights to dividends. However, the rights to receive dividends can’t be allowed to accumulate or allow the dividend to be varied.

When you issue the shares there can’t be an arrangement:

  • to guarantee the investment or protect the investor from risk
  • to sell the shares at end of, or during the investment period
  • to structure your activities to let an investor benefit in a way that’s not intended by the scheme
  • for a reciprocal agreement where you invest back in an investor’s company to also gain tax relief
  • to raise money for the purpose of tax avoidance - the investment must be for a genuine commercial reason

Before raising your money

Your investors will only be able to claim tax relief if you meet the conditions for EIS.

You can ask HM Revenue and Customs (HMRC) if your share issue is likely to qualify before you go ahead, this is called advance assurance.

How to apply

When you’ve issued your shares, whether or not you asked for advance assurance, you must complete a compliance statement (EIS1) and provide your:

  • business plan
  • memorandum and articles of association
  • last annual accounts and cash flow forecast (if you haven’t submitted accounts yet just provide your cash flow forecast)
  • shareholder agreements or drafts (if you have them)
  • prospectuses and other documents for attracting investment (if you have them)

You can only submit your compliance statement when you’ve carried out your qualifying business activity for 4 months. You must submit it within 2 years of this date, or within 2 years of the end of the tax year in which the shares were issued (whichever is later).

You must complete a separate application for each share issue.

What happens next

If your application is successful, HMRC will confirm the decision and send you compliance certificates (form EIS3) to give to your investors. Your investors can’t claim the tax relief until they receive their compliance certificate from you.

You must follow the scheme rules for at least 3 years after the investment is made - otherwise tax relief will be withdrawn from your investors. You must tell HMRC if you no longer meet the conditions within 60 days.



Small Company Enterprise Centre (Admin team)
Insight, Understanding and Risk SO970
Wealthy and Mid-sized Business Compliance
NE98 1ZZ

Where HMRC decides the investments don’t meet EIS requirements, we’ll write to you explaining why. If you disagree, you can ask HMRC to review their decision, or appeal against it.

Published 5 December 2017