Venture Capital Schemes: apply for the Enterprise Investment Scheme
Help in attracting investment if your company has no more than £15 million in gross assets.
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.
There are various rules you must follow so that your investors can claim and keep EIS tax reliefs relating to their shares. The rules must be followed, generally for 3 years after the investment or tax reliefs won’t be given or could be withdrawn.
Who can apply
You can apply if your company:
- is established in the UK
- carries out a qualifying trade
- hasn’t traded on a recognised stock exchange (an unquoted company) at the time of the investment
- has gross assets of £15 million or less before any shares are issued and not more than £16 million immediately after these are issued
- has fewer than 250 full-time equivalent employees at the time the shares are issued
- has been trading for less than 7 years
- doesn’t control another company unless that company is a qualifying subsidiary
- isn’t more than 50% subsidiary of another company
There are some different rules if your company carries out research and development or innovation
Trades that qualify
Most trades will qualify, including any research and development which will lead to a qualifying trade.
But you may not qualify if your company business mostly relates to:
- coal or steel production
- farming or market gardening
- leasing activities
- legal or financial services
- property development
- running a hotel
- running a nursing home
- subsidised generation of electricity, heat, gas or fuel
See the full list of, and more information about non-qualifying trades.
About the investment
The money raised by the new share issue must:
- be used for an existing qualifying trade or
- for preparing to carry out a qualifying trade
- for research and development that’s expected to lead to a qualifying trade
- be spent within 2 years of the investment or if later the date you started trading
- not exceed £5 million in any 12 month from all schemes
- not exceed £12 million during the lifetime of your company
These amounts include any investments you’ve already had from:
- the Seed Enterprise Investment Scheme
- Venture Capital Trusts
- state aid under an European Commission approved scheme
If you exceeded these limits your investors won’t be able to claim tax reliefs for any of your latest share issue. Read more about annual investment limit.
Companies carrying out research, development and innovation
If at the time you issue your shares your company is carrying out research, development and innovation and you meet the qualifying conditions you can apply as a ‘knowledge intensive company’. This means you can attract more investment, £5 million annually and up to £20 million in the lifetime of your company.
The conditions are:
- the amount of your overall operating costs spent on research and development or innovation must be one of the following:
- at least 10% in each of the 3 years before the investment
- at least 15% in any one of those 3 years
- you’re carrying out work to create intellectual property and within 10 years you expect to get the greater part of the company’s or group’s business from this
- 20% of your employees carrying out research and development have a relevant masters or higher degree.
These conditions have to be met for 3 years after the date your shares are issued or your investors will lose their tax reliefs.
If your company meets these conditions you can apply if you have:
- fewer than 500 employees
- been trading for at least 4 months but no more than 10 years
Read more about knowledge intensive companies.
Qualifying subsidiary companies
If your company owns subsidiaries they need to be ‘qualifying subsidiaries’.
If you’re going to spend the EIS money in the subsidiary it must be a ‘qualifying 90% subsidiary’.
For your subsidiaries to qualify:
- you must hold more than 50% of their ordinary shares
- no one other than your company or one of your subsidiaries should control the subsidiary and there mustn’t be arrangements in place to change this
If your subsidiary’s business is property or land management it must be a qualifying 90% subsidiary.
Before raising your money
You can ask HM Revenue and Customs (HMRC) to check if your share issue is likely to qualify before you go ahead, this is called advance assurance. This won’t guarantee that your proposal will qualify only that based on the facts at the time it’s likely to qualify. If it doesn’t, HMRC will let you know why.
How to apply
When you’ve issued your shares, whether or not you asked for advance assurance, you can complete Form EIS1 and send it to HMRC.
You must complete a separate application for each share issue.
If your application is accepted you will be sent a form EIS2 and forms EIS3 for you to send to your investors so they can claim tax relief. If it is not accepted, you can ask for a review or appeal to the tribunal.
Published: 1 January 2016
From: HM Revenue & Customs