The Enterprise Investment Scheme (EIS) is a UK tax scheme that gives individual investors 30% income tax relief when they buy new shares in a qualifying company. Most companies can raise up to £10 million under it in any 12 months and £24 million over their lifetime, as long as they meet HMRC’s tests on their size, their age, their trade and how they spend the money.
The relief goes to the investor, not the company. For the founder, the Enterprise Investment Scheme matters because it brings in the UK angels, syndicates and EIS funds who want the relief, from seed rounds through to Series A. It only works if the round is set up for it from the start.
I’ve raised £250m+ for my own companies and funded more than 750 businesses with over £1bn, so I’ve seen these rounds as a founder, as an investor and as a lender.
What the Enterprise Investment Scheme Is
The government created the Enterprise Investment Scheme to get private money into smaller, higher-risk companies by taking part of the risk off the investor through the tax system. HMRC sets out the reliefs for investors:
- 30% income tax relief on up to £1 million a tax year, or £2 million if at least £1 million of it goes into knowledge-intensive companies
- no capital gains tax on the shares when they’re sold, as long as they’ve been held for at least 3 years and the income tax relief hasn’t been withdrawn
- capital gains tax on other gains deferred when the money is reinvested in EIS shares
- loss relief if the company fails, where the loss, less the income tax relief already given, can be set against the investor’s income
The table shows how the reliefs work on a £100,000 investment by an additional-rate taxpayer.
| Company fails | Company sells for 3 times the money | |
|---|---|---|
| Amount invested | £100,000 | £100,000 |
| Income tax relief at 30% | £30,000 | £30,000 |
| Net cost after relief | £70,000 | £70,000 |
| Value of the shares | £0 | £300,000 |
| Loss relief at 45% on the £70,000 net loss | £31,500 | None |
| Capital gains tax on the £200,000 gain | None | None, if held for 3 years |
| Investor’s money actually lost | £38,500 | None |
On a company that fails, the investor loses £38,500 of a £100,000 cheque. On one that succeeds, they keep the whole gain tax free. That’s why some UK angels and syndicates only look at companies that qualify, and EIS funds can only invest in them.
SEIS vs EIS: Side by Side
SEIS, the Seed Enterprise Investment Scheme, covers the very first money into a young company. The Enterprise Investment Scheme is for companies that have outgrown it or are raising more than it allows.
| SEIS | EIS | |
|---|---|---|
| Investor income tax relief | 50% | 30% |
| Investor limit a tax year | £200,000 | £1 million, or £2 million with knowledge-intensive companies |
| What the company can raise | £250,000 in total | £10 million in 12 months and £24 million in its lifetime (£20 million and £40 million if knowledge-intensive) |
| Gross assets | No more than £350,000 when the shares are issued | No more than £30 million before the issue and £35 million straight after |
| Employees | Fewer than 25 full-time equivalent | Fewer than 250 full-time equivalent (500 if knowledge-intensive) |
| Age | A trade no more than 3 years old | Within 7 years of the first commercial sale (10 if knowledge-intensive) |
| Money spent within | 3 years | 2 years, or 2 years from starting to trade if later |
A company can use both schemes in the same round, with SEIS first. The EIS shares have to be issued at least a day after the SEIS shares, and once any EIS shares have been issued, the company can’t issue SEIS shares at all. SEIS money also counts towards the EIS limits.
EIS Eligibility and the Risk-to-Capital Test
The rules on EIS for companies are set out in HMRC EIS guidance. Most of them apply on the day the shares are issued, so a company can qualify for one share issue and not a later one.
- Where it is. The company needs a permanent establishment in the UK.
- Listing. It can’t be trading on a recognised stock exchange when the shares are issued, or have plans to.
- Independence. It can’t be controlled by another company or have more than 50% of its shares owned by one. Any company it controls has to be a qualifying subsidiary, more than 50% owned, and at least 90% owned if that subsidiary is the one spending the money.
- Size. Fewer than 250 full-time equivalent employees, and gross assets of no more than £30 million before the issue and £35 million straight after, counting qualifying subsidiaries.
- Age. The investment has to come within 7 years of the company’s first commercial sale, taking the earliest date across the group. Outside that window it can still raise if the money is needed to enter a completely new product market or geographic market, and the amount is at least 50% of its average annual turnover over the last 5 years.
- Trade. It has to carry on a qualifying trade, not one that’s mainly an excluded activity, such as property development, banking and finance, legal and accountancy services, or running hotels or nursing homes. It also can’t expect to close once a project or series of projects is finished.
- Use of the money. The money has to go on the trade, on preparing for a trade that starts within 2 years, or on research and development expected to lead to one. It has to be spent within 2 years and can’t be used to buy all or part of another business.
The Risk-to-Capital Condition
Every company raising under the Enterprise Investment Scheme also has to meet the risk-to-capital condition, which has two parts. The company has to aim to grow and develop its trade over the long term, in things like revenue, customers and staff. And the investment has to carry a risk that the investor loses more than they’re likely to get back as a net return, counting dividends, interest, fees, capital growth and the upfront tax relief.
HMRC looks at the company’s income, assets, structure, use of subcontractors, how the investment was marketed and its links with other companies. Any arrangement that gives one investor priority over the others, a quick way out, or protection that means other investors’ money is lost first fails the test.
How Much a Company Can Raise Under the Enterprise Investment Scheme
The limits doubled on 6 April 2026. Most companies can now raise £10 million in any 12 months and £24 million over their lifetime. Knowledge-intensive companies can raise £20 million and £40 million. A small group of specified companies, those with a registered office in Northern Ireland trading in goods or the wholesale electricity market, stay on £5 million and £12 million.
These totals aren’t just EIS money. They include everything the company has raised through SEIS, venture capital trusts, social investment tax relief and state aid approved under the risk finance guidelines. The lifetime figure also counts money raised by subsidiaries, former subsidiaries and businesses the company has bought.
Budget 2026, on 28 October 2026, didn’t change the Enterprise Investment Scheme limits or rates. It announced fixes to minor technical issues in the SEIS, EIS and venture capital trust rules, most of them taking effect from 6 April 2027, and said the government will work with investors and advisers on improving advance assurance.
How much the company raises should come from what the money is going to be used for and the plan, built up from its parts. It isn’t just a round number plucked out of the air, and it has nothing to do with the scheme limit. A company that raises £3 million when its plan needs £2 million has sold more of the business than it needed to.
Knowledge-Intensive Companies
A knowledge-intensive company is one doing a significant amount of research, development or innovation. It gets higher Enterprise Investment Scheme limits and a longer age window, and its investors get a higher annual limit. HMRC’s knowledge-intensive rules say the company and its qualifying subsidiaries need fewer than 500 full-time equivalent employees when the shares are issued, and they have to meet one of these:
- creating intellectual property, and expecting most of the business to come from it within 10 years
- having 20% of employees doing research for at least 3 years from the investment, in roles that need a relevant master’s degree or higher
The company also has to meet an operating costs condition: spending 10% of its operating costs on research, development or innovation in each of 3 years, or 15% in one of them. A company at least 3 years old shows this for the 3 years before the investment. A younger one has to do it in the 3 years after.
The age window runs for 10 years from either the first commercial sale or the year turnover first went over £200,000. A company only needs to apply as knowledge-intensive if it’s raising more than the standard limits, it’s older than the standard window, or its investors want the higher £2 million limit.
Structuring an EIS Round
Shares issued under the Enterprise Investment Scheme have to be full-risk ordinary shares. They can’t be redeemable and can’t carry special rights to the company’s assets. They can carry a limited preferential right to dividends, as long as the dividends can’t build up from year to year and the amount can’t be varied.
That rules out the preference shares a venture fund often wants, with a liquidation preference that pays it back first on a sale. A lead investor can still have them, but those shares won’t qualify, so the EIS investors in the same round take ordinary shares.
The shares have to be paid up in full, in cash, when they’re issued, so the company needs a way to take the money before the shares go out. A convertible loan note doesn’t work for EIS, because the shares would be paid for by converting a loan. UK companies that want money in before a valuation is agreed often use an advance subscription agreement drafted to HMRC’s conditions.
Founders can’t usually claim the relief on their own shares. An investor can’t claim if they or their associates are employed by the company, except as a director in some cases, or hold more than 30% of its shares, voting rights or assets on a winding-up. That test runs from 2 years before the investment to 3 years after it.
How to Raise Under EIS, Step by Step
- Check the company against the tests. That includes subsidiaries, the first commercial sale across the group, and everything already raised under the venture capital schemes.
- Apply for advance assurance if investors want it. It’s an optional opinion from HMRC that a planned share issue is likely to qualify, and some investors won’t commit without it. The process works the same way as SEIS advance assurance.
- Settle the share class and the articles. The EIS shares go out as full-risk ordinary shares, and the articles and shareholders’ agreement shouldn’t give EIS investors protection the scheme doesn’t allow.
- Take the money in. Every investor pays in full, in cash, before their shares are issued.
- Issue the shares in the right order. Any SEIS shares go first, and the EIS shares follow on a later day.
- Spend the money on the plan. It has to go on the qualifying activity and be spent within 2 years.
EIS1 and Ongoing Compliance
The EIS1 is the compliance statement the company sends HMRC after issuing shares under the Enterprise Investment Scheme. It can only go in once the company has carried on its qualifying business activity for 4 months. The deadline is 2 years from that date, or 2 years from the end of the tax year the shares were issued in, whichever is later. A new statement is needed for each share issue.
If HMRC agrees, it sends a letter of authorisation, a unique investment reference and an EIS3 compliance certificate for each investor. The investors need the certificate and the reference to claim their relief.
The company then has to keep to the rules for at least 3 years after the investment, and tell HMRC within 60 days if it stops meeting the conditions. Things that can lose investors their relief in that time include:
- Spending the money late or on the wrong things. Money not used on the qualifying activity within 2 years, or used to buy another business.
- Changing the trade. Moving into an excluded activity.
- Protecting investors. Any guarantee, buyback promise or priority for one investor over another.
- An investor becoming connected. Taking a job with the company, or building a holding over 30% with their associates.
- A sale inside the 3 years. A sale of the company, or an investor selling their shares, during the period.
FAQs
Can founders claim EIS relief on their own shares?
Usually not. Anyone employed by the company, or holding more than 30% of its shares, voting rights or assets with their associates, is connected and can’t claim. That rules out many founders.
Is EIS advance assurance compulsory?
No, advance assurance is optional. It’s an opinion from HMRC that a share issue is likely to qualify, and some investors won’t invest without one.
Can a company outside the UK use EIS?
Only if it has a permanent establishment in the UK. A company with no UK presence can’t use the Enterprise Investment Scheme, so some overseas founders set up a UK company to raise from UK investors with the relief available.
Is there an EIS equivalent outside the UK?
There’s no direct equivalent, because the Enterprise Investment Scheme only covers UK taxpayers investing in companies with a UK permanent establishment. Australia gives investors in early stage innovation companies a 20% tax offset capped at A$200,000 a year. In the US, qualified small business stock lets investors exclude some or all of the gain when they sell. Singapore’s Startup SG Equity scheme co-invests with independent investors, and the UAE has no personal income tax to relieve.
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If you’re raising and want it run properly, from making the business investable to getting in front of the right investors, that’s what Capital Raiser does. If you’re earlier than that, join Capital Catalyst for free and learn how every type of funding works, including SEIS and EIS, before you take any of it.
This explains how the Enterprise Investment Scheme generally works for UK companies. It isn’t tax, legal or investment advice, and an accountant or tax adviser should check the company’s position before shares are issued.
