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Nearly everything you need to know about the Enterprise Investment Scheme (EIS).

But did not know where to ask.

About EIS

EIS was established nearly 30 years ago

The Enterprise Investment Scheme (EIS) was established nearly 30 years ago to encourage high-net investors to invest in companies at the start of their trading. The Enterprise Investment Schemes (EIS) allows qualifying companies which have been trading for less than seven years to raise considerable capital to grow and develop their trade by offering substantial tax reliefs to high net UK investors.

The Enterprise Investment Scheme is one of the most under-rated investment schemes, as it allows both foreign and domestic companies to raise considerable investment, while UK investors get:

  • 30% Tax Relief
  • 100% Capital Gains Tax relief
  • Capital Gains Tax Liability deferral
  • Inheritance Tax relief
  • Loss Relief

For more information on any of the topics below have a look at Sapphire's Learning Centre or Blog.

A Practical Guide to EIS.

Guide updated

Our FREE eBook guide will help you understand the EIS process.

  • What is the Enterprise Investment Scheme?
  • Which companies qualify as an EIS.
  • Explanation of the tax benefits.

Our eBook will save you valuable time and expense to get your company approved by HMRC and more importantly, be able to raise finance.

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1. EIS qualifying company conditions

HMRC has very specific criteria which companies must meet to qualify for EIS.

The conditions listed below must be met by a company to qualify for investment under EIS, both at the time of the investment and throughout the three-year minimum holding period. Otherwise, the company will not be qualifying, and investors will lose and/or face clawback of the tax reliefs given:

  • The first commercial sale occurring within the last seven years, or last ten years for a Knowledge Intensive Company (KIC).
  • Have less than 250 full-time employees or less than 500 for KIC’s.
  • Carry out a qualifying trade.
  • Gross assets less than £15 million before investment and £16 million following the investment.
  • The company cannot be controlled by another company, meaning another company should not own over 49% of the company’s shares.
  • Not be listed on a recognised stock exchange, excluding the Alternative Investment Market.
  • A permanent establishment in the UK.
  • Raise less than £5 million a year, with a maximum investment of £12 million over the company’s life.
  • The funds must be spent within two years of the investment.
  • Be able to demonstrate growth and development in the future.
  • Shares will be full-risk ordinary shares with no preferential arrangements in place.
  • There must be no capital preservation provisions such as joint venture partnerships in place.

2. Date of first commercial sale

The company must receive investment under EIS within 7 years of its first commercial sale.

To qualify for EIS, a company’s first commercial trading date must be within the last seven years, or ten years for knowledge-intensive companies. Companies can use either the date of commencement of trade when revenue was generated or when the business began marketing its product or service.

In the EIS application, HMRC will ask for both the date of incorporation and the company's first commercial trading date, if applicable. If the company has not yet begun to trade, state that in the application and that the investment raised will be used in the preparation to trade. If HMRC has any reason to doubt the dates the company began trading, it will look for information both in the documents provided and what is available online.

3. Exceptions to the seven-year rule

There are three circumstances under EIS, where a company qualifies despite the trade being carried out for over seven-years:

Companies whose first commercial sale occurred over seven years (ten years for KIC) ago will not qualify for EIS unless they can meet at least one of the three conditions. HMRC will not accept any other circumstances than those listed:

  • If a company received risk finance investment within seven years (or ten years for KIC) after the date of the first commercial sale, and the funds to be raised after the seven years are for the same trade.
  • A company may qualify if they have at least 50% of its average turnover from the last five years of trade, and the investment is being used to enter a new product market or new geographic location.
  • If the company met condition two and the money raised is for the same trade.

Companies should be aware that these applications are more complex than those done within the first seven years of the company's date of first commercial sale.

4. Maximum employee numbers

To qualify the company must have less than 250 full-time employees when shares are issued.

Before the company issues shares, it must have less than 250 (or 500 for KIC) full-time employees to qualify for EIS. HMRC will confirm the number of full-time employees the company has at the time of investment; they will look at its PAYE payroll scheme to determine this.

The company should include the number of employees in their cover letter as part of their application and whether they plan to hire additional employees following the investment. Be aware directors, subcontractors and consultants are not employees, so don't include them in employee numbers.

5. Qualifying trades

Some trades at first glance may not appear to qualify for EIS but upon extensive analysis may prove eligible.

Companies must either exist to carry out a qualifying trade or be the parent company of a trading group that conducts qualifying trades. There must be no arrangements for the company to become a subsidiary of, or be controlled by, another company.

A trading group is a group that, directly or indirectly, owns more than 50% of the shares of each subsidiary held as a member of the group. Still, any subsidiary employing any of the money raised by the issue of shares must be a qualifying 90% owned subsidiary. Non-qualifying trading activities must not be a substantial part of the group's overall trade. HMRC classified substantial as 20% of the overall trade. Companies will have to demonstrate how its non-qualifying trade is not substantial in its application. Companies should determine whether they can stay below the 20% mark as they will need to maintain this until after the three-year minimum holding period.

Most trades are qualifying trades for EIS purposes, but the following are excluded:

  • Dealing in land, in commodities or futures or shares, securities or other financial instruments;
  • Dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;
  • Banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;
  • Leasing (including letting ships on charter or other assets on hire);
  • Receiving royalties or licence fees (subject to the exception relating to self-generated intellectual property);
  • Providing legal or accountancy services;
  • Farming and market gardening;
  • Holding, managing or occupying woodlands, any other forestry activities or timber production;
  • Property development;
  • shipbuilding;
  • producing coal and/or steel;
  • Operating or managing hotels or comparable establishments or managing property used as a hotel or comparable establishment;
  • Operating or managing nursing homes or residential care homes or managing property used as a nursing home or residential care home;
  • Generation or export of electricity or power, both renewable and non-renewable;
  • Production of gas or fuel; and
  • Providing services to another person where that person's trade consists, to a substantial extent, of excluded activities, and the person controlling that trade also controls the company providing the services.

5. Gross assets

Less than £15 million of gross assets before and less than £16 million after.

Before EIS, gross assets must be less than £15 million and less than £16 million after shares are issued to qualify. The investment received under EIS is not included in the gross assets test performed by HMRC; gross assets include fixed tangible assets, current assets and intangible assets. A company's gross assets will be demonstrated in the financials the company provides with its application.

6. Company structure

A company must be independent and not be controlled or a subsidiary of another company.

HMRC requires companies applying for EIS to be independent; another company must not control the company. HMRC will assess control in terms of ownership and if the potential controller is a creditor of the company.

7. Unquoted requirement

EIS companies cannot be listed or have plans to be listed on a recognised stock exchange.

There must be no plans for companies applying for EIS to be quoted on a recognised stock exchange. The Alternative Investment Market (AIM) is not a recognised stock exchange under EIS; a company can be quoted on the AIM and qualify for EIS investment.

One of the exits available to EIS investors after the minimum holding period is to become listed on a recognised stock exchange. Once the company is listed on a recognised stock exchange it is no longer qualifying; if it becomes listed on a recognised stock exchange, before the three-year minimum holding period, HMRC will claw back investors tax reliefs.

8. Permanent establishment condition

The tax reliefs are available to UK taxpayers only; however, companies incorporated outside of the UK can raise investment.

Companies applying for EIS must have a trade location in the UK, where a considerable part of the business is conducted. A company incorporated in the UK automatically meet this condition. However, non-UK companies must meet this condition in another way. Under EIS, this means a company must either have a permanent location (branch/management location) or a UK qualifying agent (residing in the UK).

A foreign company must register with the Companies House to set up a branch/agent in the UK. Foreign companies must complete a Companies House OS IN01 form and submit their constitution documents to register their branch or agent.

9. Funds raised

Due to state aid rules EIS companies can raise £5 million a year and a maximum £12 million in the company's lifetime.

EIS qualifying companies cannot raise more than £5 million (£10 million for KIC) in a year with risk finance investment and State Aid. State Aid rules restrict companies to raise up to £5 million through EIS, SEIS, SITR, VCT investment (referred to as “risk finance investment”) in one year. Also to be included within this limit is any other funding received that is considered to be EU State Aid. A maximum £12 million (£20 million for KIC) can be raised under EIS in the company’s lifetime, this includes money raised under Venture Capital Trusts, Seed Enterprise Investment Scheme, Social Investment Tax Reliefs and State Aid promoting risk finance investment. The investment companies raised under EIS cannot be used to buy all or part of another business, it must be used to grow or develop the business.

10. Share subscription conditions

The EIS shares must be paid up in full, in cash, before they’re issued.

EIS shares must be paid in full and in cash in the company's bank account when issued. When submitting the company's EIS application the company should also submit a copy of their bank statement, demonstrating to HMRC the shares were paid in full before they were issued. EIS qualifying shares must be full-risk ordinary shares with no preferential or redemption rights or carry no special rights to your assets. The shares issued can have limited preferential rights to dividends, but the rights to receive dividends cannot be accumulated or allow the dividend to be varied.

There must be no arrangement in place for share capital preservation or pre-arranged exits for investors to get their money back. HMRC will not accept any reciprocal arrangements in place, where two company founders agree to purchase shares from each other’s business to benefit from EIS tax reliefs.

11. Risk to capital

EIS companies are required to demonstrate significant risk plus growth and development in their application.

The Risk to Capital condition introduced by HMRC in 2018, this condition has two parts:

  1. Growth and Development: The company must have the objective to grow and develop in the long-term.
  2. Significant Risk: There must be a considerable risk that investors will lose their investment.

The Risk-to-Capital condition ensures companies carry out the appropriate growth and risk that Venture Capital Schemes were created to support. Some factors to consider regarding this condition includes the number of employees, company assets and the industry. A company should perform a SWOT analysis to assess its strengths, weaknesses, opportunities and threats, providing a clear view of its risks to capital to HMRC.

12. Financial health

Companies cannot receive EIS investment if they are facing financial difficulty at the time of investment.

Financial difficulty is when the company is unable to meet its debts when they are due or when the liabilities of a company outweigh their assets. HMRC will consider a company to be in financial difficulty if:

  • The company cannot pay their debts, as and when they fall due.
  • The value of the company’s liabilities is greater than its assets, taking into consideration its contingent and prospective liabilities (the “balance sheet test”).
  • The company has been trading for more than seven years and more than half of its subscribed share capital has been wiped out as a result of accumulated losses, it is regarded as being in financial difficulty

Companies should not mislead HMRC regarding their financial situation; otherwise, this may potentially result in investors not being able to get the tax reliefs offered by the Scheme.

13. Continuous period

The conditions to qualify for EIS must be met throughout the minimum three-years following the issue of shares.

The company must be EIS qualifying for a minimum of three years after the investment is made. If a company fails to meet any of the qualifying conditions, tax relief will be withdrawn, and companies may face litigation from angry investors.

Companies should understand that unless drastic changes occur when HMRC grants its qualifying status, it is unlikely a company will suddenly no longer qualify for EIS. Companies must tell HMRC if they believe they no longer meet the qualifying conditions within 60 days. HMRC will then judge to determine the next course of action; HMRC will communicate their decision to the company, who should then share this with their investors. Should the decision not be favourable, companies can ask HMRC to review it and/or appeal against it.

14. Disqualifying arrangements

HMRC will not accept companies that would not exist in the first place without the tax relief for investors.

EIS reliefs cannot be used as tax mitigation or avoidance product; companies under EIS must have a commercial purpose and not be set up solely for the benefits of tax-advantaged finance. Following the issuance of shares, there cannot be:

  • any protection for the investment or protection for the investor from risk
  • the intent to sell the shares at the completion of, or through the investment period
  • activities to let an investor benefit in a way the scheme does not intend
  • a reciprocal agreement where the companies invest back in an investor’s company to also gain tax relief

15. Speculative applications

HMRC is not accepting  EIS advance assurance applications which they consider to be speculative.

Any company or agent making an application for EIS  advance assurance needs to reassure HMRC that the application is not speculative. The company has potential investors, therefore implying that it will get the investment if it obtains advance assurance. Companies should provide a list of at least six names and addresses of potential investors or provide a letter of intent from a fund or crowdfunding platform to avoid speculative applications.

16. Knowledge Intensive Companies (KIC)

Knowledge Intensive Companies are companies which are carrying out either research and development or innovation.

To be classed as a KIC, companies need to meet the IP condition or Skilled-Employee condition.

  • IP condition: The company needs to be developing a product or service that will result in intellectual property and will be implemented in the trade of the business within the next ten years.
  • Skilled-Employee condition: At least 20% of a company’s employees must have a relevant master’s or higher degree and be conducting research for more than three years from the date of investment.

Once a company meets either of the two above conditions, a company must then meet the below conditions to qualify for EIS as a Knowledge Intensive Company.

  • The company must have less than 500 full-time employees when the shares are issued.
  • Research and development or innovation must account for 10% a year for three years or 15% in one of three years of a company’s overall operating costs before the investment. If the company is less than three years old, the accounts must include a schedule demonstrating this.
  • Knowledge-intensive companies can qualify for EIS if it’s within ten years of either its annual turnover exceeding £200,000 or the date of its first commercial sale.
  • If a company obtained investment in this period (authorised under the risk finance guidelines), they could raise money for the same activity so long as they demonstrate their intent in the business plan.

As an EIS Knowledge Intensive Company, a company can raise a maximum of £10 million per year and a maximum of £20 million of investment in the company's lifetime. For Knowledge Intensive Companies, the age limit is ten years, and a company can choose to use the date from the end of the accounting date where their turnover reaches £200K per year, instead of the company’s incorporation date.

17. EIS investor qualifying conditions

Along with company conditions, HMRC also has conditions for which investors must meet to qualify for tax reliefs.

Investors must meet the following conditions in order to qualify as an EIS investors:

  • Investors must be UK taxpayers;
  • Investors can invest a maximum of £1 million (or £2 million for KIC) in EIS investments per tax year;
  • EIS shares must be held for a minimum holding period of three years from the time of investment. Investors who divest before the three year period will face clawback of tax reliefs;
  • Investors cannot have a connection to the company, such as being an employee, family member, paid director, etc.;
  • Investors cannot hold more than 30% of the company’s share capital to qualify for EIS;
  • Investors cannot qualify as an EIS investors if they have previously invested in the company.

The conditions listed above must be met to qualify for investment under EIS at the time of the investment and throughout the three-year minimum holding period. If investors don't maintain these conditions, investors will no longer be qualifying and will lose and/or face clawback of the tax reliefs given. Should at any point an investor become ineligible, they should inform HMRC as soon as possible.

18. Connected parties

HMRC guidelines constitute connected parties as having either a financial interest in the investee company or being connected through employment.

A financial interest in the company is having more than 30% of the shares or voting rights in the company. This requirement applies two years before the subscription and three years after the issue. Any rights to shares and assets carried by an associate during a wind up of trade will also be considered by HMRC. Associates include immediate family members, such as spouses, parents, grandparents, children and grandchildren (siblings are not regarded as connected parties by HMRC).

From low-level employees to company directors, if a company employs an individual, they are connected to the business and not eligible for EIS tax reliefs. If an investor's associate is employed by the company, the investor will not qualify for tax reliefs; this applies two years before share subscription and three years after it.

The only exception to connected parties is for Business Angels. Relief will not be withdrawn if a business angel who was initially an unpaid director becomes a paid director.

19. The EIS Process

EIS is administered by HMRC’s Venture Capital Reliefs Team and is who will be making a judgement on whether the company qualifies for EIS.

Each application for EIS typically takes a maximum of eight weeks to approve; however, typically, they do come back much quicker than this. However, this can depend on whether HMRC has any questions about the application. HMRC may have questions seeking further clarification on whether a company meets one or more of the qualifying conditions, which can delay being granted EIS advance assurance. Depending on whether a company goes through advance assurance, there are four stages to the process:

Advance Assurance

Companies applying for EIS are not required to go through advance assurance. Still, it is recommended to ensure there are no surprises for a company or its investors when investment is received. Not all companies will file for advance assurance, making a company more attractive to prospective investors. Advance assurance is essentially “pre-approval” from HMRC that the company meets the qualifying conditions. Before starting the application, a company should have the following documentation and information:

  • A valid Unique Tax Reference (UTR) and a Company Reference Number (CRN).
  • Latest company accounts and any accounts for any subsidiaries, if applicable.
  • The business plan, including financial forecasts.
  • Details on how the company will use the funds raised under EIS.
  • An explanation of how the company meets the risk to capital condition.
  • A schedule of all tax-advantaged investments received by the company, including the amount, date and scheme under which each investment was received.
  • An up-to-date copy of the Memorandum and Articles of Association, with a detailed explanation of any changes to be made.
  • Details of any shareholder agreement or any other subscription agreement the company intends on establishing.
  • The latest draft of any prospectus, information memorandum, brochure or similar document relating to the relevant fundraising or offer to be issued to potential investors, if applicable.
  • Information on any financial support received by the company that constitutes EU State Aid.

Once a company has all the above documentation, it can then begin filing for the advance assurance with HMRC. Once this has been filed, HMRC may come back with questions regarding details in the application to ensure that all conditions are met and no disqualifying activities are occurring. If successful, following this HMRC will grant the company a provisional acceptance of the company’s eligibility for EIS. Companies can then take this provisional acceptance to prospective investors to encourage them to invest.


Companies that apply for advance assurance will have a quicker and simpler application process when submitting their EIS1. This is due to having already provided the necessary documentation needed by HMRC and will therefore only need to provide documentation for any changes in the business and the issuance of shares. However, if a company has not sought advance assurance before issuing shares, they will need to provide more information for their EIS1 compliance statement..

  • A valid Unique Tax Reference (UTR) and a Company Reference Number (CRN).
  • Latest company account’s and any accounts for any subsidiaries.
  • The business plan, including financial forecasts.
  • Details on how the company will use the funds raised under EIS.
  • An explanation of how you meet the risk to capital condition
  • A schedule of all tax-advantaged investments received by the company, including the amount, date and scheme under which each investment was received.
  • An up-to-date copy of the Memorandum and Articles of Association, with a detailed explanation of any changes to be made.
  • Details of any shareholder agreement or any other subscription agreement the company intends on establishing.
  • The latest draft of any prospectus, information memorandum, brochure or similar document relating to the relevant fundraising or offer to be issued to potential investors.
  • Information on any financial support received by the company that constitutes EU State Aid.
  • A bank statement demonstrating the shares being paid in full.

The EIS1 form must be submitted every time the company issues EIS shares and should be submitted within two years in which the shares were issued; otherwise, investors will not receive their tax reliefs.


When HMRC approves the application,  the company will receive a EIS2; this is essentially confirmation from HMRC. This lets companies know that the shares they issued have been authorised, and EIS3 forms can be issued to the investors recorded in the EIS1 application.

The Company will need to have spent at least 70% of the money or traded at least four months to submit this application. HMRC constitute the trading element as making or trying to make a sale. 


Once a company receives confirmation from HMRC in the form of a EIS2, they can then issue EIS3s. The company uses the information from the EIS2 document to fill out the EIS3 form, such as the Unique Investment Reference (UIR) and the termination date for the shares. The EIS3 form will need to be authorised by both a company representative and the investor before being submitted to HMRC.

Following the completion of the EIS process, it is up to the EIS qualifying company and its investors to stay qualifying throughout the three-year holding period. Furthermore, if the company raises additional investment through EIS, they will have to do the EIS1/EIS2/EIS3 process for each round of funding.

Additional Information

If the company is less than three years old, the company should consider the Seed Enterprise Investment Scheme (SEIS), which encourages investors to make investments into companies at the start of their trading. Under SEIS, qualified UK investors will benefit from:

  • 50% Tax Relief
  • 100% Capital Gains Tax relief
  • 50% Capital Gains Tax exemption for chargeable gains reinvested
  • Inheritance Tax relief
  • Loss Relief

For more information on the Seed Enterprise Investment Scheme (SEIS) have a look at Sapphire's SEIS Pillar Page, Learning Centre or MoneyLab Blog. Furthermore, a company can raise through investment through a fund, given the high likelihood of an early-stage company's failing, a fund allows the investor to achieve greater diversification within their portfolio. 



Please note that this is only a condensed summary of the taxation legislation and should not be construed as constituting advice that a potential investor should obtain from his or her own investment or taxation adviser. The value of any tax relief will depend on the individual circumstances of investors.

Sapphire Capital Partners LLP does not give tax advice and recommends that you consult a tax adviser if you are in any doubt about any of the technical aspects of the EIS legislation.

We are more than just a SEIS or EIS consultancy service.
You don't have to go it alone. The team at Sapphire are here to answer your questions, help you get to grips with what is required for a successful SEIS or EIS Advance Assurance application and answer any follow-up questions HMRC might have. All that - plus our dedicated help, blog resources and templates - means you will never feel you do not have enough support.

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