If you’re considering making an investment – or you’re a business owner seeking investment – you may be interested in the government’s Enterprise Investment Scheme. Providing investors with tax relief, the Enterprise Investment Scheme (EIS) UK has a range of benefits for both investors and businesses to consider. Learn more about EIS, starting with our Enterprise Investment Scheme definition.
Enterprise Investment Scheme: definition
Established in 1994, the Enterprise Investment Scheme (EIS) is a UK government venture capital scheme designed to help small, high-risk companies raise finance. It offers a range of different tax relief measures for investors who purchase shares in these companies, making them a more attractive prospect for financiers. Under the scheme, your business can raise as much as £5 million per year (up to a total of £12 million throughout your company’s lifetime).
Enterprise Investment Scheme requirements
Companies from many different industries can make use of EIS. However, there are a couple of Enterprise Investment Scheme requirements for businesses that want to use the scheme. Essentially, your company will only qualify for EIS if the following conditions are met:
It’s permanently established in the UK
It isn’t trading on a recognised stock exchange at the time of share issue
It doesn’t control any other company (besides qualifying subsidiaries)
It isn’t owned by any other company
It doesn’t have more than 50% of shares owned by another company
It doesn’t expect to close after completing a project or a series of projects
Beyond these Enterprise Scheme Investment requirements, there are rules relating to the size of your company. Put simply, only “knowledge-intensive” companies qualify for the scheme. The term “knowledge-intensive” is relatively broad, but essentially, it means that the company must be a young and innovative business. For example, a health technology business developing a new piece of medical testing equipment would be a good candidate for EIS.
Enterprise Investment Scheme limits
As mentioned earlier, there are a couple of limitations to the Enterprise Investment Scheme (EIS) UK that you’ll need to pay attention to. Most importantly, a company cannot raise more than £5 million over the course of any 12-month period (or more than £12 million over the course of its lifetime) from any of the following sources:
Venture Capital Trusts
State aid (approved under the risk finance guidelines)
Social investment tax relief (SITR)
Beyond capital, there are a few Enterprise Investment Scheme limits regarding the age of the company. Essentially, you’ll only be able to receive investment through EIS if it’s within seven years of your business’s first commercial sale. If your business has subsidiaries or has made an acquisition, this seven-year period extends to the earliest commercial sale made by any company in the group.
Enterprise Investment Scheme tax relief options
Under the Enterprise Investment Scheme (EIS) UK, there are several tax relief benefits that investors will gain access to. Here’s a little more information about these Enterprise Investment Scheme tax relief measures:
Income Tax relief – You can claim up to 30% tax relief on investments worth up to £1,000,000 made in a single tax year (meaning that you can gain a maximum tax reduction of £300,000.
Capital Gains Tax exemption – Gains on Capital Gains Tax are free if you hold the shares for longer than three years.
Loss relief – If your shares were disposed of at a loss, you might be able to set this loss against your Income Tax from either that year or a previous year.
Capital Gains Tax deferral relief – You can delay the payment of CGT if the gain is invested in shares of an EIS-qualifying business.
As you can see, investing in EIS-qualified companies could have a substantial impact on your company’s bottom line through its associated tax relief measures.
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