Enterprise Investment Scheme

For a company to qualify for EIS it must have gross assets under £15 million before investment and £16 million after, fewer than 250 full-time equivalent employees, and must have been carrying on a qualifying trade for no more than seven years (or ten years for knowledge-intensive companies). The maximum a company can raise under EIS in its lifetime is £12 million (£20 million for knowledge-intensive companies). Investors receive 30% Income Tax relief on qualifying shares held for at least three years, CGT exemption on disposal after three years, and CGT deferral by reinvesting gains into EIS shares. Shares must be newly issued ordinary shares with no preferential rights to assets on winding up. Loss relief is available if the shares fall in value. HMRC administers the scheme and companies should seek advance assurance before issuing shares.

In practice, EIS is what an investor asks about the moment a raise gets beyond friends and family, and losing eligibility is one of the few fundraising mistakes that cannot be fixed afterwards. The seven-year age limit runs from the company's first commercial sale, not from incorporation, so a company that traded quietly for years before pivoting may have less runway than the founders assume. The risk-to-capital condition also matters: HMRC must be satisfied the company intends to grow and that the investment carries genuine risk of loss, which rules out asset-backed or capital-preservation structures.

Worked example: an investor subscribes £50,000 for new ordinary shares in a qualifying company. She claims 30% Income Tax relief, worth £15,000, reducing her net cost to £35,000. Three years later the company fails and the shares become worthless. She claims loss relief on the £35,000 at her marginal rate, so a higher-rate taxpayer recovers a further £14,000, leaving a real loss of around £21,000 on a £50,000 investment. Had the company instead sold successfully after three years, the gain would have been free of Capital Gains Tax altogether.

The traps repeat across most failed claims: shares issued before the money is actually received; shares with preferential rights on winding up, which many standard investor term sheets contain; investors who become connected by taking more than 30% or by joining as a paid director in a way that breaches the rules; and companies that spend the money on something outside the qualifying trade. Relief is also withdrawn if the shares are sold, gifted (other than to a spouse or civil partner) or the company ceases to qualify within three years.

EIS follows on from SEIS for slightly more established companies and often sits alongside a Start Up Loan or grant funding requiring match funding. Before you raise, read our guides to angel investment and venture capital, and get the share rights checked by a specialist before the round closes.