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

How the scheme works

The scheme:

• offers tax reliefs to individual investors who buy new shares in your company
• helps your company to raise money and grow its business ― up to £5 million each year and a maximum of £12 million in your company’s lifetime

These limits apply to amounts you get from other venture capital schemes, where the initial investment is within 7 years of your company’s first commercial sale.

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

DifferentSpecified rulescompanies

Your forcompany knowledge-intensiveis a specified company if it’s registered office is in Northern Ireland, and it’s carrying on a trade in either:

• goods — usually involving the manufacture of goods, and not including the service sector
• the wholesale electricity market —including generation, transmission and distribution of electricity

Knowledge-intensive companies

There are different rules iffor youknowledge-intensive arecompanies.

Your company is a knowledge-intensive company andif you carry out a significant amount of research, development or innovation, and you:

• want to raise more than £12£24 million in the company’s lifetime (or £12 million for specified companies)
• did not receive investment under a venture capital scheme within 7 years of your first commercial sale

There are also increased limits for your investors. You can find out more in the following guidance: ‘Use a venture capital scheme to raise money for your knowledge intensive company’.

Before you apply

You’ll need to check:

• that your company can use the scheme
• you will meet the conditions
• what you can do with money raised
• limits on money raised and the age of your company
• if your company owns or controls any other companies
• you meet the risk to capital condition

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:

• have less than 250 full-time equivalent employees at the time the shares are issued
• not have gross assets worth more than £15£30 million before any shares are issued, and not more than £16£35 million immediately afterwards
• havefor lessspecified thancompanies, 250not full-timehave equivalentgross employeesasset atworth themore timethan the£15 million before any shares are issued and £16 million immediately afterwards

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

If your company has a subsidiary that is a specified company, there are limits on how the money raised by a new share issue can be used.

Limits on money raised

YourThe amount your company cannotcan raise morewill thandepend £5on your circumstances.

Most companies can raise up to £10 million in total in any 12 month period from:

• Enterprise 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

YourMost companycompanies cannotcan raise moreup thanto £12£24 million from these sources in your company’s lifetime. This includes any money received by any subsidiaries, former subsidiaries or businesses you’ve acquired.

If you’re a specified company, you can raise up to:

• £5 million in a 12 month period
• £12 million in the company’s lifetime

If you’re a knowledge intensive company, you can find out about the limits for knowledge intensive companies.

Limits on the age of your company

You can receive investment under the Enterprise Investment Scheme 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 under the schemes in ‘Limits on money raised’, you can use the Enterprise Investment Scheme to raise money for the same activity — if you show 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, if it supports the growth and development of your company.

Meeting the risk to capital condition

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

• your company must aim to grow and develop its trade long term
• the investment should be a risk to the investors’ 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.

We 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, we’ll look 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

Issuing 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 for Enterprise Investment 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

After you have issued shares

To allow your investors to claim Enterprise Investment Scheme tax reliefs you must first submit a compliance statement (form EIS1) to HMRC for the shares issued.

ApplyWhat withyou’ll a compliance statementneed

You can submit a compliance statement if you are:

• the company secretary
• a director
• an agent

You can authorise an agent to apply on your behalf. They’ll need to provide a signed letter dated within the last 3 months confirming that they are entitled to act on your behalf.

You need to:

1. Issue your shares.

2. Complete a compliance statement (EIS1).

3. Send 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 carriescarried 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 documentdocuments 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 new statement for each share issue.

For the shares to be treated as issued under the Seed Enterprise Investment Scheme (SEIS) you must use the Compliance Statement form SEIS1. Once shares are issued under the Enterprise Investment Scheme then the company cannot issue shares under the Seed Enterprise Investment Scheme.

Apply with a compliance statement

You can submit a compliance statement if you are:

• the company secretary
• a director
• an agent

You can authorise an agent to apply on your behalf. They’ll need to provide a signed letter dated within the last 3 months confirming that they are entitled to act on your behalf.

You need to:

1. Issue your shares.

2. Complete a compliance statement (EIS1).

3. Send it to HMRC.

Start now

What happens next

If we agree:

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

2. You must use the unique investment reference number on the compliance certificates you give to investors. They’ll need this and the compliance certificate 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 more information

You can find more information in the HMRC Venture Capital Schemes Manual.

If you have further questions about your compliance statement or the scheme you can email: enterprise.centre@hmrc.gov.uk.

For any claims by investors you can contact us.