The Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies. 

In order for investors to benefit from EIS tax reliefs, the company that issues the shares has to meet a number of rules regarding the kind of company it is, the amount of money it can raise, how and when that money must be employed for the purposes of the trade, and the trading activities carried on.

The amount of Income Tax relief for individual investors in the EIS is 30% and the maximum annual amount that an individual can invest through the EIS is £1 million or £2 million if at least £1 million of the money is invested in knowledge-intensive companies. The generous tax allowances are in some way meant to off-set the issue that making investments in these types of companies can carry a high-risk. Investors should be careful not to invest any money that they are unprepared to lose.  

The tax advantages of the EIS include Income Tax relief, CGT deferral for the life of the investment and tax relief for any losses made on the shares bought. Note that Income Tax relief is limited to the amount which reduces the individual’s Income Tax liability for the year to nil.

HMRC has recently published statistics on the uptake of the scheme. In the most recent year for which figures have been published, 2021-22, 4,480 companies raised a total of £2,305 million of funds under the EIS scheme. This included £584 million of investment by 1,755 companies raising funds under the EIS scheme for the first time.