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.
What is the criteria?
For investors to be able to claim EIS tax reliefs, the company which issues the shares must 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 designed to offset that investments may be high risk. Investors should be very careful not to invest any money that they are not prepared to lose.
Are there any tax advantages?
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. Since the EIS was launched in 1994, 32,965 companies have received investment and around £24 billion of funds have been raised. In the most recent year for which figures have been pushed, 2019-20, 4,215 companies raised a total of £1,905 million of funds under the EIS scheme. This included £466 million of investment by 1,500 companies raising funds under the EIS scheme for the first time.