UseApply to use the Enterprise Investment Scheme (EIS) to raise money for your company

The Enterprise Investment Scheme (EIS) is one of 4 venture capital schemes -― check which is appropriateright for you.

How the scheme works

EISThe isscheme:

• offers 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.

  Undercompany

• helps EIS,your youcompany canto raise money and grow its business ― up to £5 million each year,year and a maximum of £12 million in your company’s lifetime.lifetime

These Thislimits alsoapply includesto amounts receivedyou get from other venture capital schemes.schemes, Yourwhere companythe mustinitial receive investment underis a venture capital scheme within 7 years of itsyour company’s first commercial sale.

You must check that you can use the scheme and follow the scheme rulesrules, so that your investors can claim and keepkeep Enterprise EISInvestment Scheme tax reliefs relating to their shares.

Different rules for knowledge-intensive companies

There are different rules forif you are a knowledge-intensive companiescompany thatand you carry out a significant amount of research, development or innovation, and either:you:

• want to raise more than £12 million in the company’s lifetime
• did not receive investment under a venture capital scheme within 7 years of theiryour first commercial sale

Approved EIS funds

TheThere rulesare foralso EISincreased approvedlimits fundsfor willyour beinvestors. changingYou oncan 6find Aprilout 2020more to take account of the:

• changes that will focus approved funds on knowledge-intensive investments
• increased flexibility available to fund managers in the timingfollowing ofguidance: investments

Read‘Use thea draftventure guidelinescapital toscheme find out more about the amendment to theraise requirementsmoney for anyour EISknowledge approvedintensive fundcompany’.

WhatBefore moneyyou raised can be used forapply

TheYou’ll moneyneed raisedto by the new share issue must be used for a qualifying business activity, which is either:check:

• athat qualifyingyour trade
• preparingcompany tocan carryuse outthe ascheme
• you qualifyingwill trademeet (which must start within 2 years of the investment)conditions
• researchwhat andyou developmentcan that’sdo expectedwith to lead to a qualifying trade

The money raised by the new share issue must:

• belimits spenton withinmoney 2raised yearsand of the investment,age orof ifyour later, the date you started tradingcompany
• notif beyour usedcompany toowns buy all or partcontrols ofany anotherother businesscompanies
• poseyou ameet the risk of loss to capital for the investorcondition
• be used to grow or develop your business

Companies

Check that your company 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

Your company and any qualifying subsidiaries must:

• not have gross assets worth more than £15 million before any shares are issued, and not more than £16 million immediately afterwards
• have less than 250 full-time equivalent employees at the time the shares are issued

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.

Check you will meet the conditions

You must meet the conditions to use the Enterprise Investment Scheme before your investors will be able to claim tax relief.

You can ask HMRC if your share issue is likely to qualify before you go ahead, this is called advance assurance.

Check what you can do with money raised

Money raised by a new share issue must be used for a qualifying business activity which is either:

• a qualifying trade
• preparing to carry out a qualifying trade ― this must start within 2 years of the investment
• research and development that’s expected to lead to a qualifying trade — such as a project to make an advance in science or technology

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

Limits on money raised

Your company cannot raise more than £5 million in total in any 12-month12 month period from:

• EISEnterprise Investment Scheme

• Venture Capital Trusts (VCT)

• the Seed Enterprise Investment Scheme (SEIS)
• social investment tax relief (SITR)
• state aid approved under the risk finance guidelines -— check with the person who gave you the aid for advice

Your company cannot raise more than £12 million from these sources in your company’s lifetime. This includes any money received by any subsidiaries, former subsidiaries or businesses you’ve acquired.

Limits on the age of your company

You can receive investment under EISthe asEnterprise longInvestment asScheme if it’s within 7 years of your company’s first commercial sale. If you have any subsidiaries (including former subsidiaries) or businesses you’ve acquired, the date of your first commercial sale is the earliest of the group.

If you received investment in this period (underunder EIS,the SEIS,schemes SITR,in VCT‘Limits oron statemoney aidraised’, approved under the risk finance guidelines), you can use EISthe Enterprise Investment Scheme to raise money for the same activity as— longif as you showedshow you were planning to do so in your original business plan.

If you did not receive investment within the first 7 years, or now want to raise money for a different activity from a previous investment, you’ll have to show that the money:

• is required to enter a completely new product market or a new geographic market
• you’re seeking is at least 50% of your company’s average annual turnover for the last 5 years

Qualifying subsidiary companies

If your company owns or controls any other companies 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 cannot be any 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 investment on is to be carried out by the qualifying subsidiary
• subsidiary’s business is mainly property or land management

The subsidiary can be set up to complete a project or series of projects before closing, asif long as it supports the growth and development of your company.

RiskMeeting the risk to capital condition

The investment in your company must meet the risk to capital condition, which means:

• your company must useaim theto moneygrow forand growthdevelop andits developmenttrade long term
• the investment should be a risk to the investorsinvestors’ capital

Growth and development means you’ll use the investment to grow things like your revenue, customer base and number of employees.

The growth and development of your company should be permanent and not rely on the investor’s continued support.

The investment should carry a risk that the investor will lose more capital than they are likely to gain as a net return.

HMRCWe will not consider the maximum return an investor could get if your company is successful, because this cannot be guaranteed.

The net return includes:

• income from dividends, interest payments and other fees
• capital growth
• upfront tax relief

When deciding if you meet the risk to capital condition, HMRCwe’ll will look at things like your company’s:at:

• sources of income
• assets
• structure
• use of subcontractors
• marketing of the investment opportunity
• relationship with other companies

You will not meet the risk to capital condition if there are risk reducing arrangements in place that result in an investor:

• getting priority over other investors
• being able to withdraw their money as soon as possible
• protecting their money so that other investors money is used first

WhenIssuing you issue shares

The shares you issue must be paid up in full, in cash, when they’re issued. Your company should have a way to accept payment before shares are issued.

Your shares forfor Enterprise EISInvestment Scheme investments must be full risk ordinary shares which:

• are not redeemable
• carry no special rights to your assets

The shares you issue can have limited preferential rights to dividends. However, the rights to receive dividends cannot be allowed to accumulate or allow the dividend to be varied.

When you issue the shares there cannot be an arrangement:

• to guarantee the investment or protect the investor from risk
• to sell the shares at the end of, or during the investment period
• to structure your activities to let an investor benefit in a way that’s not intended by the scheme
• for a reciprocal agreement where you invest back in an investor’s company to also gain tax relief
• to raise money for the purpose of tax avoidance -— the investment must be for a genuine commercial reason

Before

After raisingyou yourhave money

issued shares

YourTo investorsallow willyour onlyinvestors be able to claim taxEnterprise reliefInvestment ifScheme tax reliefs you meetmust thefirst conditionssubmit a compliance statement (form EIS1) to HMRC for EIS.the shares issued.

Apply with a compliance statement

You can asksubmit HMRCa compliance statement if youryou shareare:

• the issuecompany issecretary
• a likelydirector
• an toagent

You qualifycan beforeauthorise youan goagent ahead,to thisapply ison calledyour advancebehalf. assurance.

HowThey’ll need to apply

EmailYou HMRCneed toto:

1. Issue askyour forshares.

2. Complete thisa formcompliance instatement Welsh(EIS1).

3. Send (Cymraeg)it to HMRC.

Start now .

If you’ve got advance assurance, provide copies of any documents that have changed since HMRC gave you advance assurance.

If you’ve not got advance assurance, you must provide the following information for your company and any subsidiaries:

• the business plan and financial forecasts
• a copy of the latest accounts
• an explanation of how you meet the risk to capital condition
• details of all trading and activities to be carries out, and how much you expect to spend on each activity
• an up to date copy of the memorandum and articles of association
• the information memorandum, prospectus or other document used to explain the fundraising proposal to your investors
• details of any other agreements between your company and the shareholder
• a list of the amounts, dates and venture capital schemes under which you’ve previously received investment
• any other documents to show you meet the qualifying conditions

You’ll also need to show evidence that you’re a knowledge intensive company if you’re applying as one.

You can only submit your compliance statement when you’ve carried out your qualifying business activity for 4 months. You must submit it within 2 years of this date, or within 2 years of the end of the tax year in which the shares were issued (whichever is later).

You must complete a separatenew applicationstatement for each share issue.

Send

For yourthe application

Youshares canto emailbe ortreated postas yourissued complianceunder statementthe andSeed supportingEnterprise documents.

Email:Investment enterprise.centre@hmrc.gsi.gov.ukScheme (SEIS) you must use the Compliance Statement form SEIS1.

Post:

What happens next

If we agree:

1. We will send you a letter of authorisation, a unique reference number and a compliance certificatescertificate (form EIS3) to give to your investors.

2. TheYou lettermust willuse includethe a unique investment reference number.number You must include this on the compliance certificates you give to investors. InvestorsThey’ll need this and the compliance certificate and reference number to be able to claim tax relief.

3. You must follow the scheme rules for at least 3 years after the investment is made -— otherwise tax relief will be withdrawn from your investors.

Get withinmore 60 days.

information

WhereYou HMRCcan decidesfind more information in the investmentsHMRC doVenture notCapital meetSchemes EISManual.

If requirements,you we’llhave writefurther toquestions youabout explainingyour why.compliance Ifstatement youor disagree,the scheme you can askemail: HMRCenterprise.centre@hmrc.gov.uk.

For toany reviewclaims theby decision,investors oryou appealcan againstcontact it.us.