Applying for Enterprise Investment Scheme (EIS) for Your Company

The Enterprise Investment Scheme (EIS) helps your company raise money by offering attractive tax reliefs to investors who buy new shares. To use the scheme, your company must meet strict eligibility criteria around its size, trade, and how you'll use the funds—and you'll need to maintain compliance for at least three years to protect your investors' tax reliefs.

How the Enterprise Investment Scheme works

The EIS encourages individuals to invest in your company by giving them tax reliefs on their investment. In return, your company gains access to capital to grow your business.

Your responsibility is to ensure your company qualifies for the scheme and follows all the rules. If you fail to comply for at least three years after the investment is made, HMRC will withdraw or withhold tax reliefs from your investors—which could damage your reputation and future fundraising prospects.

Basic eligibility requirements

Your company can use the EIS if it:

• Has a permanent establishment in the UK
• Is not trading on a recognised stock exchange when shares are issued, and has no plans to do so
• Does not control any other companies (except qualifying subsidiaries)
• Is not controlled by another company, and does not have more than 50% of its shares owned by another company
• Does not expect to close after completing a specific project or series of projects

Size limits

Your company and any qualifying subsidiaries must have:

• Fewer than 250 full-time equivalent employees when the shares are issued
• Gross assets worth less than £30 million before shares are issued
• Gross assets worth no more than £35 million immediately after the share issue

If your company is a "specified company" (see below), the asset limits are lower: less than £15 million before and £16 million immediately after the share issue.

Qualifying trade requirement

Your company must carry out a qualifying trade. If you're part of a group, the majority of the group's activities must be qualifying trades. Not all business activities qualify—certain sectors are excluded, so check whether your trade is eligible.

How much you can raise

Most companies can raise up to £10 million in any 12-month period from EIS, Venture Capital Trusts (VCT), the Seed Enterprise Investment Scheme (SEIS), Social Investment Tax Relief (SITR), and state aid approved under the risk finance guidelines combined.

Over your company's lifetime, you can raise up to £24 million from these sources. This includes any money received by subsidiaries, former subsidiaries, or businesses you've acquired.

Specified companies

If your company's registered office is in Northern Ireland and you carry on a trade in goods (usually involving manufacturing, not services) or the wholesale electricity market (including generation, transmission and distribution), you're a specified company with lower limits:

• Up to £5 million in any 12-month period
• Up to £12 million in the company's lifetime

Knowledge-intensive companies

If your company carries out significant research, development, or innovation, you may qualify as knowledge-intensive with higher limits. This applies if you want to raise more than £24 million in the company's lifetime (or £12 million for specified companies), or if you did not receive venture capital scheme investment within seven years of your first commercial sale.

Knowledge-intensive companies also offer increased limits to investors.

Time limits for raising investment

You can receive EIS investment within seven years of your company's first commercial sale. If you have subsidiaries (including former subsidiaries) or have acquired other businesses, the seven-year period starts from the earliest first commercial sale in the group.

If you received investment during this seven-year period under EIS or similar schemes, you can continue using the EIS for the same activity if this was in your original business plan.

Outside the seven-year window, or for a different activity from a previous investment, you can still use the EIS if you demonstrate that:

• The money is required to enter a completely new product market or geographic market, and
• The amount you're seeking is at least 50% of your company's average annual turnover for the last five years

What you can use the money for

Money raised through an EIS share issue must be used for a qualifying business activity:

• Carrying out a qualifying trade
• Preparing to carry out a qualifying trade (which must start within two years of the investment)
• Research and development expected to lead to a qualifying trade, such as a project to make an advance in science or technology

The money must be:

• Spent within two years of the investment date, or if later, the date you started trading
• Used to grow or develop your business
• Subject to a genuine risk of loss for the investor

You cannot use EIS funds to buy all or part of another business.

Qualifying subsidiary companies

If your company owns or controls other companies, they must 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 the subsidiary
• There cannot be any arrangements that would put someone else in control

Where the subsidiary will carry out the business activity funded by the investment, your company must own at least 90% of it.

Getting advance assurance

Before seeking investment, you can ask HMRC whether your share issue is likely to qualify for EIS. This is called advance assurance and gives investors confidence before they commit their money.

The application process

Once you've confirmed your eligibility and raised investment, you'll need to apply to HMRC to use the scheme. This involves submitting information about your company, the share issue, and how you'll use the funds. After HMRC approves your application, your investors can claim their tax reliefs.

Maintaining compliance

Remember that you must follow all EIS rules for at least three years after the investment is made. If you breach the conditions during this period, your investors will lose their tax reliefs—which could result in significant tax bills for them and serious reputational damage for your company.

Sources

• Apply to use the Enterprise Investment Scheme to raise money for your company

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.