If your company’s under 10 years old, with less than £15 million of assets, you may be able to attract investment up to £5 million a year.
How the scheme works
The Enterprise Investment Scheme (EIS) is designed so that your company can raise money to help grow your business. It does this by offering tax reliefs to individual investors who buy new shares in your company.
Under EIS, you can receive up to £5 million each year, and a maximum of £12 million in your company’s lifetime. This also includes amounts received from other venture capital schemes.
There are various rules you must follow 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Tax reliefs will be withheld or withdrawn from your investors if you don’t follow the rules for at least 3 years after the investment is made.
Who can apply
You can apply if your company:
- carries out a qualifying business activity
- is established in the UK
- isn’t trading on a recognised stock exchange at the time of the share issue, also known as an unquoted company
- has no arrangements to become a quoted company or a subsidiary of one at the time of the share issue
- has gross assets of £15 million or less before any shares are issued and not more than £16 million immediately after these are issued
- made its first commercial sale less than 7 years ago - this time runs from the date of your first sale or supply for profit rather than merely opening for business
- doesn’t control another company unless that company is a qualifying subsidiary
- doesn’t have more than 50% of its shares owned by another company
You’ll also have to have fewer than 250 full-time equivalent employees at the time the shares are issued.
There are some different rules if your company carries out research and development or innovation.
About the investment
The investment in your company must be a qualifying investment.
The shares you issue must be paid up in full when they’re issued and you’ll need to be registered at Companies House.
Your shares for this investment must be full risk ordinary shares which:
- aren’t redeemable
- carry no special rights to your assets or preferential rights to dividends
The shares you issue can have limited preferential rights but their dividend can’t be varied. They also mustn’t have a cumulative right to receive a dividend.
When you sell the shares there can’t be an arrangement:
- to protect the investment
- to sell the shares at end of, or during the investment period
- to structure your activities to let an investor benefit from a venture capital scheme
- for a reciprocal agreement where you invest back in an investor’s company to also gain tax relief
Qualifying business activity
The money raised by the new share issue must be used for an existing qualifying business activity, which includes:
- preparing to carry out a qualifying trade
- research and development that’s expected to lead to a qualifying trade
It must be spent within 2 years of the investment or if later the date you started trading.
The limits on the total amounts you can raise include any investments you’ve already had from:
Companies carrying out research, development and innovation
You can apply as a ‘knowledge intensive company’ if at the time that you issue your shares your company is carrying out research, development or innovation. This means you can attract up to £20 million in the lifetime of your company.
The extra conditions are:
- that the amount of your overall operating costs spent on research and development or innovation must be at least either:
- 10% in each of the 3 years before the investment
- 15% in any one of those 3 years
- your company must 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 as well as having a relevant Master’s or higher degree
If your company meets these conditions you can apply for EIS if you have:
- fewer than 500 employees, instead of the usual 250
- been trading for at least 4 months but no more than 10 years, instead of the usual 7 years
Qualifying subsidiary companies
If your company owns subsidiaries 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
Before raising your money
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 form EIS1 and send it to HMRC.
Your EIS1 must be submitted within 2 years after the later of the:
- completion of the initial 4 months of carrying out a qualifying business activity
- tax year in which the shares were issued
You must complete a separate application for each share issue.
What happens next
If your application is successful, we’ll send you a form EIS2 and forms EIS3 to give to your investors. Your investors won’t be able to claim the tax relief until they receive their EIS3 from you.
Where HMRC decide the investments don’t succeed in meeting EIS requirements, you’ll be able to review and appeal the decision.
Appealing the decision
If you’re unsuccessful, we’ll write to you explaining why. You can ask HMRC to review the decision.