EIS Schemes Explained
What is an EIS Scheme?
An Enterprise Investment Scheme (EIS Scheme) is designed to help UK companies raise money and grow. It was introduced in 1994 by the UK government and designed to help small and medium-sized companies (SMEs) raise funds to grow and to incentivise private investments in small and growing companies. Since its launch in 1994, over 33,000 companies have received a total of over £24 billion.
The benefits for an investor
The principal draw for investors is the opportunity to invest in the newest and most exciting businesses and benefit from tax relief:
- Tax relief of up to 30%, either against this year’s tax bill or a carryback from last year
- Ability to defer capital gains made elsewhere, by investing these in an EIS
- Tax-free growth– no Capital Gains Tax if your investment is successful
- Loss relief – losses from EIS investments can be offset against income or capital gains taxes if the investment does not work out
- Inheritance tax-free, as long as the EIS is held for at least two years, and you still hold it on your death.
What are the requirements for a company to qualify for the EIS scheme?
EIS-qualifying companies can vary significantly across a wide range of industries and sectors. However, there are a number of different requirements to meet for a company to qualify for the UK tax relief scheme. The company and qualifying companies:
- must have a permanent establishment in the UK and not be listed or plan to be listed on the stock exchange.
- can receive investment under EIS as long as it is within seven years of your company’s first commercial sale.
- cannot control other companies other than qualifying subsidiaries and or be controlled by another company (own more than 50% of a company’s shares or be owned by over 50% by another company).
- needs to have long-term objectives and not expect to close in the near future.
- have less than 250 full-time workers at the time the shares are issued
- not have gross assets worth over £15 million prior to the shares being issued or worth more than £16 million directly after
To qualify for EIS, the UK company must not “be controlled by another company” and “not have more than 50% of its shares owned by another company”. With this in mind, a UK subsidiary of a foreign parent would not qualify for an EIS scheme. To find out more about how a foreign-owned company can utilise an EIS scheme to raise UK investment please contact us.
EIS: What can the raised money be used for?
The money raised should be used for qualifying business activities. Qualifying business activities include carrying out or preparing to carry out a qualifying trade (that must begin within two years of the investment) or R&D that will lead to a qualifying trade.
The money raised by the new share issue must be spent within two years of the investment or the date you started trading to grow or develop your business and should not be used to buy all or part of another company.
Companies not qualifying for EIS funding
EIS is designed to focus funding where needed most, so the types of businesses that qualify for EIS funding can change over time. The following types of companies are currently excluded from EIS funding:
- Dealing in land, property development and leasing
- Dealing in goods other than regular retail or wholesale distribution
- Dealing in financial instruments, banking, insurance, hire purchase, money lending and other economic activities
- Receipt of royalties or licence fees
- Legal and accounting services
- Farming and market gardening
- Operating or managing hotels or residential care homes
- Coal production, steel production and shipbuilding
- All energy generation activities
What is the difference between EIS and SEIS Schemes?
In essence, EIS and SEIS have the same purpose: to facilitate investment into high-growth potential and serve as a finance booster to make it easier for many promising businesses to obtain growth funding.
SEIS is explicitly intended for start-ups and companies at an early stage, while EIS is suitable for “larger” and more “mature” companies – that are still relatively small and young in the context of the business landscape.
What is Advance Assurance and how is it connected to EIS?
HMRC introduced Advance Assurance since full SEIS and EIS qualifications cannot be granted until the investment has been made. The assurance further assures the investor that their investments are eligible based on their provided information.
Companies can receive a provisional confirmation from HMRC that they would qualify for the EIS scheme through the Advance Assurance. This allows potential investors to see whether your company may be eligible for the potential Enterprise Investment Scheme Tax Reliefs. The assurance, however, will not indicate whether the potential investor qualifies for the S(EIS) scheme.
EIS Scheme Claim Form – how to apply for Enterprise Investment Schemes?
If you are unsure if your company qualifies, reach out to our Governance team, who can match you with their expert partners, identify if you are eligible, and support you with the setup.
Are You Looking to Expand Your Business to the UK?
Understanding the benefits of different tax reliefs can be critical in whether an international expansion is successful or not. At Goodwille, we successfully help startups get established in the UK market with services such as, setting up a subsidiary or registering a branch, and offer advice and services to ensure that your business flourishes in the United Kingdom. For more information about how we can help you, get in touch with us today.