What is the Enterprise Investment Scheme
EIS is 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.
Under EIS, you can raise up to £5 million each year, and a maximum of £12 million in your company's lifetime.
Investors Requirements
Shares purchased must be paid up in full, in cash, when they’re issued (no payment in kind).
You can invest a maximum of £1 million each year through EIS.
Company Requirements
UK based and have permanent establishment in the British Isles.
Fewer than 25 full time employees, and less than £15m gross assets.
Maximum EIS raise of £5m per year, up to £12m in total.
Raise must be within 7 years of first commercial sale.
Funds acquired must be used in qualifying trade within 2 years of investment.
Funds can not be used for acquisition.
Shares issued under EIS must be full risk ordinary shares which:
Aren’t redeemable
Carry no special rights to your assets
Investor Advantages
Income Tax Relief
30% income tax relief in the year the investment is made.
Relief can be carried-back to the previous year if previous allowance wasn’t utilized.
Must claim some income tax relief for Capital Gains Tax Exemption to apply.
Capital Gains Tax Exemption
Gains from shares sold after at least 3 years are exempt from tax.
CGT Deferral Relief
Capital Gains Tax due on other investments can be deferred via investing in EIS until the shares are disposed of.
Loss Relief
If investment fails, loss can be offset against tax on income or capital gains.
Investment (minus 50% to account for income tax relief) * current income tax rate.
Advanced Assurance
Early in the process, ask HMRC if your share issue is likely to qualify for EIS, once assured this gives investors the knowledge their tax breaks are assured.
Important Notes
When considering ownership and control HMRC includes holdings by relatives “spouses or civil partners, parents and grandparents, and children and grandchildren”. So EIS relief can’t be claimed by founders or founders’ relatives if their combined holding is over 30% of the shares or gives them control of the company (instead you should explore entrepreneurs relief).