How the scheme works?
The Enterprise Investment Scheme (EIS) is a scheme designed to help grow your business by raising money. It does this by offering tax reliefs to individual investors who buy new shares in your company. Under EIS, you can raise 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.
If your company carries out a significant amount of research, development or innovation, these are known as knowledge intensive companies, and different rules will apply.
What companies can use the scheme?
Your company can use the scheme if it:
- has a permanent establishment in the UK
- is not trading on a recognised stock exchange at the time of the share issue and does not plan to do so
- does not control another company other than qualifying subsidiaries
- is not controlled by another company, or does not have more than 50% of its shares owned by another company
- does not expect to close after completing a project or series of projects
- does not have gross assets worth more than £15 million before any shares are issued, and not more than £16 million immediately afterwards (including qualifying subsidiaries)
- has less than 250 full-time equivalent employees at the time the shares are issued (including qualifying subsidiaries)
What money raised can be used for?
The money raised by the new share issue must be used for a qualifying business activity, which is either:
- a qualifying trade*
- preparing to carry out a qualifying trade (which must start within 2 years of the investment)
- research and development that’s expected to lead to a qualifying trade
The money raised by the new share issue must:
- be spent within 2 years of the investment, or if later, the date you started trading
- not be used to buy all or part of another business
- pose a risk of loss to capital for the investor
- be used to grow or develop your business
*Most trades will qualify. Click here for excluded trades.
When you issue shares
The shares that are issued must be paid up in full, in cash, when they’re issued and be full risk ordinary shares which are not redeemable and do not carry special rights to your assets.
The shares can have limited preferential rights to dividends but this right to receive cannot be allowed to accumulate or to be varied.
How to apply
When the shares have been issued, you must complete a compliance statement (EIS1) and send it to HMRC.
The compliance statement can be submitted:
- when you’ve carried out your qualifying business activity for 4 months;
- and within 2 years of this date (above), or within 2 years of the end of the tax year in which the shares were issued
For each share issue, you must complete a separate application. Additionally, the company must obtain advanced assurance from HMRC (if they haven’t received it already).
If your application is successful HMRC will send you a letter and compliance certificates (form EIS3) to give to your investors so they are able to claim their tax relief.
