EIS Experts

What is an EIS Scheme?

The Enterprise Investment Scheme (EIS) is a UK government initiative that aims to support small and growing businesses by making them more attractive to investors. Launched in 1994, the scheme offers a range of tax reliefs to individuals who invest in qualifying companies. Investors can claim up to 30% income tax relief on their investments, defer capital gains tax, and benefit from loss relief if the business fails. If shares are held for at least three years, gains are free from capital gains tax. These incentives make EIS one of the most popular tax-efficient investment schemes in the UK.

 

What Are the Benefits of EIS and SEIS for Investors?

EIS and SEIS offer significant tax benefits to investors, making them attractive options for those looking to support early-stage companies. One of the primary benefits is income tax relief. Investors can claim a reduction in their tax liability equal to 30% of their investments in qualifying EIS companies, with a limit of £1 million per tax year. This limit increases to £2 million for investments in knowledge-intensive companies. For SEIS investments, the tax relief is even more generous, with a 50% deduction available, although the maximum investment limit per tax year is £100,000.

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The relief can be used to offset tax liability for the year of investment or the previous year, but it cannot exceed the total tax due. However, if shares in an EIS or SEIS company are sold within three years, the tax relief may be clawed back. The amount reclaimed is calculated based on the disposal proceeds and the original rate of relief, up to a maximum of the initial reduction claimed.

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In addition to income tax relief, investors can benefit from capital gains tax (CGT) advantages. For EIS investments, capital gains from other assets can be deferred by reinvesting the disposal proceeds into qualifying EIS shares, provided the reinvestment takes place between 12 months before and 36 months after the original disposal. The deferred gain will become chargeable if the EIS shares are sold, the company ceases to qualify, or the investor moves out of the UK.

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SEIS investors can also access reinvestment relief, where 50% of the reinvested gain becomes tax-exempt rather than deferred. This applies when capital gains from any asset are reinvested into qualifying SEIS shares in the same tax year, subject to a cap of £50,000. The exempt amount is determined by the lowest of the original gain, the amount reinvested with SEIS tax relief, or a specified claim amount.

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Further benefits include full CGT exemption if EIS or SEIS shares are held for at least three years and the initial investment qualified for income tax relief. Additionally, if an investor incurs a loss on the sale of EIS or SEIS shares, the loss (after deducting any tax relief already received) can be offset against net income for the year, reducing overall tax liability.

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What Types of Business Are Eligible for the EIS?

Not all businesses qualify for the Enterprise Investment Scheme. To be eligible, a company must meet several criteria set by HMRC. The company must have gross assets of no more than £15 million before investment and no more than £16 million after investment. It must also have fewer than 250 full-time employees, although knowledge-intensive companies can have up to 500 employees. The business must be unquoted, meaning its shares are not listed on a stock exchange like the London Stock Exchange. It must also be engaged in a qualifying trade, as certain sectors such as banking, insurance, property development, and legal or financial services are excluded. Additionally, the money raised through EIS must be used for business growth and development, such as product innovation, hiring staff, or expanding operations. Meeting these criteria is essential for a company to gain EIS approval from HMRC and attract investors.

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How Does a Company Take Part in the EIS?

For a company to secure investment through the EIS, it must follow a structured process. While not mandatory, businesses can apply for Advance Assurance from HMRC, which provides potential investors with confirmation that the company is eligible for EIS. Once assured, the company must issue new, ordinary shares that are paid in full and carry no preferential rights. After issuing shares, the business must complete and submit an EIS1 form to HMRC. Upon approval, investors receive their tax relief certificates (EIS3 forms). Companies must also maintain their eligibility criteria for at least three years after issuing EIS shares to ensure compliance. Effective communication with investors is crucial throughout this process to maintain confidence in the scheme and secure long-term funding.

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Can I Combine the EIS With Other Schemes?

Yes, businesses can combine EIS with other government-backed investment schemes, but specific rules apply. A company can first raise up to £250,000 under the Seed Enterprise Investment Scheme (SEIS) before moving on to EIS funding. It is also possible to receive funding from both EIS and Venture Capital Trusts (VCTs), provided that total investment limits are adhered to. Additionally, EIS does not affect eligibility for R&D tax credits, but businesses should ensure they structure their funding appropriately. Companies can still apply for government grants or loans alongside EIS, though it is advisable to check if they impact state aid rules.

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How to Qualify for SEIS/EIS

For a business to qualify for SEIS or EIS, it must be a UK-based, actively trading company operating within an eligible sector. The funds raised must be used for business growth and development, and the company must issue new shares with no preferential rights. Additionally, it must maintain compliance for the required period. Investors also need to meet certain requirements, such as holding shares for a minimum of three years to retain tax benefits. Understanding these qualifications is essential to ensure successful participation in the schemes.

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How Can EIS Experts Help?

EIS Experts provide tailored support to businesses looking to qualify for the Enterprise Investment Scheme. Our services cover every aspect of the process, starting with an eligibility assessment to determine whether your business meets the EIS requirements. We also assist in securing Advance Assurance from HMRC, which can make your company more attractive to investors. Once the investment process begins, we ensure compliance with EIS regulations, help with investor relations, and assist in issuing tax relief certificates. Our team provides ongoing support, from structuring investment rounds to handling HMRC submissions, ensuring your business maximizes the benefits of the scheme.

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Take the Next Step

If you're ready to explore EIS funding for your business, EIS Experts can guide you through every step. Contact us today to get started and unlock the potential of tax-efficient investment.