Don’t invest unless you’re prepared to lose all the money you invest. This is a high risk investment and you are unlikely to be protected if something goes wrong. Take 2 minutes to learn more.

What is EIS?

The Enterprise Investment Scheme (EIS) is a government-supported initiative aimed at encouraging investment into British private businesses.

Launched in 1994, EIS provides a range of tax reliefs to investors who allocate capital to eligible companies, including a 30% income tax relief.

Tax benefits are subject to individual circumstances and subject to changes.

Benefits of EIS

Income tax relief

30% under EIS. Possibility to carry back the relief to the previous tax year. You can invest up to £2,000,000 per year under SEIS and receive up to £600,000 in tax relief.

No capital gains tax

Provided shares are held for at least three years, you will pay no capital gains tax on any profits you make from the sale of EIS shares.

Loss relief

If you make a loss on an EIS investment, you can offset that loss against your income tax at your marginal tax rate.

No inheritance tax

There is no inheritance tax to pay on shares bought through EIS as long as they have been held for at least two years.

Capital gains reinvestment relief

EIS allows you to defer a capital gain.

Business Investment relief

UK residents who are non-UK domiciled can invest via EIS and bring in overseas capital without a UK tax charge.

A Brief History of EIS

In the early 1990s, the UK was recovering from a recession, grappling with high unemployment rates and sluggish economic growth. To combat these challenges and stimulate the economy, the government introduced the Enterprise Investment Scheme (EIS) in 1994. EIS was designed to encourage investments in small, high-risk companies by offering significant tax reliefs to investors, thus supporting businesses that might otherwise struggle to secure funding.


Initially, EIS provided a 20% income tax relief, which has since increased to 30%, making it a more attractive proposition for investors. The scheme also offered capital gains tax relief and loss relief, further reducing the financial risk for investors. Unlike SEIS, EIS was targeted at slightly larger companies, allowing firms with up to 250 employees and £15 million in assets to qualify.


Over the years, EIS has been amended and expanded to better serve the evolving needs of businesses and investors. For instance, in 2012, the same year SEIS was launched, the government increased the maximum investment limit and expanded the range of qualifying trades. These changes aimed to make EIS more flexible and accessible.

EIS has played a pivotal role in the UK's economic landscape, channelling billions into thousands of companies. By the end of the 2021-2022 financial year, EIS had helped approximately 31,365 companies raise over £24 billion. The scheme's impact is particularly notable in sectors like technology and healthcare, where it has supported numerous innovative startups and scale-ups.

 

While EIS has generally been well-received, it has faced scrutiny over its complexity and the potential for abuse. Nevertheless, the government has continued to iterate on the scheme, striking a balance between encouraging investment and ensuring fiscal responsibility.


EIS has significantly contributed to job creation and economic growth across the UK, particularly in regions with strong entrepreneurial ecosystems. By enabling more people to invest in small companies, EIS has not only helped businesses thrive but has also democratised investment in the UK. Despite the challenges and criticisms, EIS remains a cornerstone of the UK's strategy to foster innovation and support small businesses.

Eligibility & Limits: Rules for Investors

Here are some criteria investors should be aware of when considering EIS funds.

  • Tax Incentives: Investors can get 30% tax relief on investments up to £2 million per tax year, with the option to carry back relief to the previous year.
  • Investment Limits: The individual investment limit is £1 million per tax year under the EIS.
  • Focus on SMEs: The scheme is aimed at encouraging investment in small to medium-sized enterprises, which are often higher-risk.
  • Qualification Criteria: Investments must be in UK-based companies that are less than seven years old from their first commercial sale (or from the date of the first commercial sale for knowledge-intensive companies) and have fewer than 250 employees and no more than £15 million in gross assets before shares are issued.
  • Post-Investment Compliance: Investors receive EIS-3 compliance certificates from HMRC after the company submits the EIS1/Compliance Statement.

Eligibility & Limits: Rules for Companies

Here are some criteria companies should be aware of when considering EIS funds.

  • Capital Raising Limits: Eligible businesses can raise up to £5 million each year and a maximum of £12 million in their lifetime under EIS, including other state aids received.
  • Eligibility Criteria: To qualify, companies must be UK-based, trading for less than seven years from the date of their first commercial sale, have fewer than 250 employees, and have no more than £15 million in gross assets before shares are issued.
  • Usage of Funds: The funds raised must be used for a qualifying business activity within two years of the investment or the trade starting, whichever is later.
  • Advance Assurance: Businesses should apply for advance assurance from HMRC to confirm eligibility, providing details like a business plan and financial forecasts.

 

  • Compliance and Documentation: Organising investor details and eligibility documents is crucial for a smooth EIS1/Compliance Statement submission process.
  • SEIS Prioritisation: If using both SEIS and EIS, SEIS investment must be secured before any EIS investment.
  • Expert Advice: Consulting with experts like SFC Capital is advised to ensure EIS eligibility and streamline funding and compliance procedures.

Relief Example

Here's a summary:
  • Victoria invests £50k
  • She receives £15k back through EIS tax relief
  • Cost of investment: £35k

Check out the potential scenarios on the right.

Tax benefits are subject to individual circumstances. Subject to changes.

1
Group 27-1

Victoria invests £50k

2
Group 27-1

Investor receives $X in tax relief

3
Group 31

Company succeeds

-or-

Company fails

Positive Relief Example

EIS has a vast array of tax reliefs. This minimises the capital at risk for investors in a higher-risk startup environment.

In the case of an investor investing £20,000 through EIS, they will get an immediate £6,000 back in income tax relief in their following tax return, which reduces the net cost of investment to £14,000. Also, if the company fails and the share price goes to 0, the investor gets an additional £6,300 back (this is based on a 45% tax rate, amount varies).

In the case the company is a success and increases its share price by 3x return, the shares will now be worth £60,000. Based on the cost of investment of £14,000, the net return of this investment would be 4.3x, and the investor would also not pay any capital gains tax on the investment.

Tax benefits are subject to individual circumstances. Subject to changes.

EIS Positive

Negative Relief Example

In the case of an investor investing £20,000 through EIS, they will get an immediate £6,000 back in income tax relief in their following tax return, which reduces the net cost of investment to £14,000. Also, if the company fails and the share price goes to 0, the investor gets an additional £6,300 back (this is based on a 45% tax rate, amount varies).

In the case the company is a success and increases its share price by 3x return, the shares will now be worth £60,000. Based on the cost of investment of £14,000, the net return of this investment would be 4.3x, and the investor would also not pay any capital gains tax on the investment.

Tax benefits are subject to individual circumstances. Subject to changes.

EIS Negative
Positive Relief Example
Negative Relief Example

EIS Tax Calculator

Try out our EIS Calculator by following these steps. Try adjusting the EIS Expected Investment Portfolio Performance slider and see the effect displayed in the Expected Investment Performance Table below and the bar chart to the side.

Tax benefits are subject to individual circumstances. Subject to changes.

Expected Investment Performance
SEISCGT Tax Relief
SEISIncome Tax Relief
SEISNet Investment
SEISTotal Profit/Loss
NON-SEISNet Investment
NON-SEISTotal Profit/Loss
SEIS
NON-SEIS
  • Net Investment
  • Income Tax Relief
  • Total Profit
Investing in a company or a portfolio using SEIS can make you £0 better off than not using SEIS
This is an indication based on current HMRC guidance. Tax rules can change and benefits depend on individual circumstances. The minimum holding period to retain the tax reliefs is three years and the investment must remain qualifying. This is a simplified explanation of complex rules: if in doubt, please seek specialist advice.

SEIS/EIS Tax Calculator

Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis.
Select your Tax Relief
How much do you plan to invest?
What is your Income Tax Rate?
Do you owe CGT to HRMC in this tax year?
What is your chargeable Capital Gains Tax
amount? (£)
What is your Capital Gains Tax (CGT) Rate?
How well do you expect your investment to perform?
Expected Investment Performance
Investing in a company or a portfolio using SEIS makes you £0 better off than not using SEIS

Direct vs. Fund Investment

There are two main approaches to investing in startups: Direct Investment, for hands-on involvement, and Fund Investment, for those preferring expert-managed portfolios:

Direct Investment

Angel Investors, often known as Direct Investors, allocate funds directly into startups. This approach requires you to identify, decide on, and manage investments personally. It is suited for individuals with the necessary time, access, and expertise to pinpoint and oversee potential successes. Being an Angel Investor is an active role, requiring your direct involvement.

Fund Investment

Investors in funds entrust their capital to the expertise and networks of SEIS & EIS Fund managers. By pooling your resources with those of other investors, the Fund invests in a portfolio of startups on your behalf. This method offers diversified investment, mitigates risk, and provides access to high-quality startups, which may be beyond the reach of most Direct or Angel investors.

Choosing an EIS Fund

When selecting an EIS fund, consider:

  • Track Record: Past performance of the fund management team.
  • Management Fees: Impact on overall returns.
  • Diversification: Range of sectors in the fund.
  • Communication: Frequency of updates on investment.
  • Exit Strategy: Approach to realising returns.

What to Do After Investing

Claiming EIS Tax Relief

One of the most important things to do after the investment in either a company or a fund is to claim your tax relief. When investing through a fund, the fund manager will provide the EIS3 forms necessary for tax relief claims. When investing directly, the companies will supply these.

Once the EIS3 certificates are available, you will be able to claim your tax relief from HMRC as part of your self-assessment tax return. If you wish, you can carry your tax relief to the previous tax year as well. We recommend that you seek professional advice if you are unsure of your personal circumstances. Tax benefits are subject to individual circumstances. Subject to changes.

How to Claim Your Tax Relief

After investing through a fund, the fund manager will provide the EIS3 form necessary for tax relief claims.

Steps include:

  • Safely storing EIS3 certificates.
  • Completing the self-assessment tax return.
  • Providing evidence of the investment.
  • Submitting the tax return on time.


Details required for the tax return include Unique Investment Reference, investee company name, investment amount, date of share issue, and potentially the EIS3 forms.


It can usually take between 5 days and 8 weeks to receive the tax refund in your accounts.

Carry Back Option

Another important option to keep in mind is the carry back option. Under EIS, you are able to backdate some EIS investments to the preceding tax year.


For queries, contact HM Revenue & Customs.

Monitoring Performance

Set up a system to track your investments. Many funds offer portals for easy access to investment overviews, valuations, and company reports. Remember, early-stage startups may take time to show significant returns due to initial heavy investments in product development.

The EIS Investment Journey

  • Investment Decision: Choosing between direct investment or a diversified fund.
  • Compliance for direct investment: Ensuring the investment meets HMRC’s EIS criteria.
  • Share Issuance: Receiving shares in the companies.
  • EIS3 Form: Receiving and filing this form for claiming the tax relief.
  • Tax Relief: Claiming EIS tax relief through the HMRC self-assessment form.
  • Monitoring & Exit: Especially if you’re investing directly into startups, it’s important to monitor their performance and identify exit opportunities. For fund investors, the fund manager will do this for you.

Risks of EIS

Key Risks in EIS Investments

Investment Risk
  • Small to medium-sized businesses, often operating in competitive or evolving markets, face multiple risks of failure. Despite thorough due diligence, there's always a risk of business underperformance or failure, which could lead to partial or total loss of the investment.

Liquidity Risk
  • EIS investments are not typically publicly traded, rendering them illiquid. This means they cannot be readily sold for cash. Further, EIS regulations require a minimum three-year holding period.

Regulatory Risk
  • The appeal of EIS's tax relief is dependent on adhering to certain criteria by all parties. If there should be a failure to meet these guidelines, the tax benefits can be withdrawn, impacting overall returns.
Risks Management Strategies

Diversification
  • Consider investing in EIS funds to automatically diversify across several businesses. Alternatively, invest in a range of EIS-eligible companies to spread the risk.

Due Diligence
  • Conduct thorough research into the company's business model, market potential, and management team. Obtain professional advice when venturing into unfamiliar industries. When investing through an EIS fund, much of this due diligence will be carried out by the fund manager.

Time Horizon and Risk Tolerance
  • Early-stage investing is a long-term game, so align your investment strategy and ensure your investments do not jeopardise your immediate financial needs and only commit funds that you can afford to lose.

 

Regulation Compliance
  • Stay up-to-date with EIS regulations and ensure that your investee companies adhere to them. Seek guidance from tax advisors or investment professionals. Much of this will be covered by your fund manager when investing through a fund.

The differences between EIS, SEIS, and VCT

EIS
  • £2,000,000 Maximum Investment Amount Per Year
  • £5,000,000 Maximum Amount Raised by Company 
  • 30% Income Tax Relief
  • YES - Carry Back Option
  • Deferral on Capital Gains Tax
  • YES - Tax-free Growth
  • YES - Loss Relief
SEIS
  • £200,000 Maximum Investment Amount Per Year
  • £250,000 Maximum Amount Raised by Company 
  • 50% Income Tax Relief
  • YES - Carry Back Option
  • 50% Relief on Capital Gains Tax
  • YES - Tax-free Growth
  • YES - Loss Relief
VCT
  • £200,000 Maximum Investment Amount Per Year
  • Amount Raised by Company - N/A
  • 30% Income Tax Relief
  • NO - Carry Back Option
  • NO - Capital Gains Tax
  • YES - Tax-free Growth
  • NO - Loss Relief

Currently Open Fund

FAQ

What is EIS carry back?

EIS carry back allows investors to apply a portion of their investment against their income tax bill in the previous tax year, potentially reducing the amount of tax they owe.

How do the EIS and SEIS differ, and which one is right for me?

SEIS is designed for investing in very early-stage companies, offering higher tax reliefs to reflect the increased risk, while EIS is for more established businesses. The right choice depends on your risk tolerance and the stage of businesses you're interested in.

Can a business qualify for both EIS and SEIS, and if so, how would that work?

A business can qualify for both SEIS and EIS by first raising funds under SEIS to the maximum allowance and then moving on to EIS for subsequent funding rounds, subject to meeting specific conditions for each scheme.

Are there any sectors or business types that are not eligible for EIS?

Ineligible sectors for EIS include finance, property development, and legal services, among others, due to their non-qualifying business activities.

What are the potential risks for investors under EIS?

Potential risks for investors include the loss of capital, liquidity risk (difficulty in selling shares), and the risk of losing tax relief if the company or investor fails to comply with the schemes' conditions.

What are the rules regarding spending EIS funds?

Rules for spending EIS funds require that the investment is used for qualifying business activities, such as development or expansion, within specific time limits.

What is the timeline for a company to use the investment under EIS?

The timeline for using EIS investment is generally within 3 years for EIS, to support growth and development activities.

Are there any restrictions on the exit strategies for investments made through EIS?

Exit strategy restrictions under EIS include maintaining the investment for a minimum of three years to retain tax reliefs, with few specific restrictions on the form of exit.

How can an investor sell their SEIS or EIS shares, and are there any tax implications?

Selling SEIS or EIS shares can be done after holding them for a minimum of three years, and any gain may be exempt from capital gains tax if all conditions are met.

Can SEIS and EIS be used in conjunction with other forms of funding, such as bank loans or grants?

Using SEIS and EIS with other funding is possible, but care must be taken to ensure compliance with the schemes' conditions, especially regarding the ownership and independence of the company.

If a company becomes ineligible for EIS after receiving investment, what are the implications for the investor's tax relief?

If a company becomes ineligible after investment, investors may lose their tax relief, although this depends on the timing and reasons for the ineligibility.

Can the same investor claim both SEIS and EIS tax relief in the same tax year?

Claiming both SEIS and EIS in the same year is possible, provided the investor has not exceeded the annual investment limits for each scheme and the investments meet all other conditions.

What are the common reasons for a business failing to qualify for EIS?

Common reasons for failing to qualify include exceeding the asset or employee limits, conducting disallowed activities, or not planning to spend the funds on qualifying business activities.

How does an entrepreneur apply for EIS?

Applying for SEIS and EIS involves the entrepreneur submitting an application to HMRC to receive advance assurance, which helps attract investors by confirming the company's eligibility.

FAQ (revise to just be EIS questions) niklas@sfccapital.com

Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis.
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis.
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis.
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 
Lorem Ipsum auctor odio, nec condimentum quam placerat pellentesque. Nulla vel tincidunt sapien. Praesent eleifend nulla massa, a consequat sapien ultricies quis. 

DISCLAIMER:
SFC Capital Ltd (SFC) is an appointed representative of SFC Capital Partners Ltd which is authorised and regulated by the Financial Conduct Authority (‘FCA’) in the United Kingdom (FRN 736284). This website is intended for professional investors only; any reproduction of this information, in whole, or part, is prohibited. The content is for information purposes only and should not be used or considered as an offer or solicitation to purchase or sell any securities.

Investment in early-stage companies involves risks such as illiquidity, lack of dividends, loss of investment and dilution. Investment in SEIS/EIS eligible companies should be considered as part of a diversified portfolio. The availability of tax relief depends on individual circumstances and may change in the future. The availability of tax relief depends on the company invested in maintaining its SEIS/EIS qualifying status. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. The investment products cited herein may place capital at risk and therefore investors may not get back the full amount invested. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up. Investors may not get back the full amount invested. Companies’ pitches for investment are not offers to the public and investments can only be made by members of SFC Capital. SFC Capital takes no responsibility for this information or for any recommendations or opinions made by the companies. Neither SFC Capital nor any of its employees provide any financial or tax advice in relation to the investments and investors are recommended to seek independent financial and tax advice before committing. This website is not directed at or intended for publication or distribution to any person (natural or legal) in any jurisdiction where doing so would result in contravention of any applicable laws or regulations. No warranties or representations of any kind are expressed or implied herein. This material is confidential and is the property of SFC Capital.

© SFC Capital - 2024