The Enterprise Investment Scheme (EIS) offers tax relief to investors looking to support early-stage, growth-focused businesses in the UK. Before applying for Advance Assurance or issuing shares, your company must meet HMRC's qualifying conditions.
Here is a breakdown of the key eligibility rules.
1. The Risk to Capital Condition
This is HMRC's primary test. If your business does not meet this requirement, HMRC will not consider the application further.
Growth Objectives: You must demonstrate a clear plan to grow and scale the trade long-term.
Genuine Investor Risk: Investors must put their capital at real risk. There can be no guarantees, safety nets, or arrangements designed to protect investor funds from loss.
2. Company Size and Age Limits
To qualify under EIS, your company must meet strict scale and operational timeframe limits:
Gross Assets: Must not exceed £30 million before the share issue and £35 million immediately afterwards.
Employee Count: Must have fewer than 250 full-time equivalent (FTE) employees.
Trading Age: The share issue must take place within 7 years of your company's first commercial sale (extended to 10 years for Knowledge-Intensive Companies).
3. Business Structure and Activity Rules
HMRC requires eligible companies to have a solid operational presence in the UK:
UK Permanent Establishment: Your business must have a physical presence in the UK, such as an office, factory, workshop, or research laboratory.
Qualifying Trade: The company must carry on a qualifying trade (excluding trades such as property development, financial services, or leasing).
Unquoted Status: Your company cannot be listed on a recognised stock exchange at the time of share issue.
Independence: Your company must not be controlled by another company, nor can another business hold more than 50% of your shares.
4. Share Issue and Investment Caps
How you raise money matters just as much as who you raise it from:
Cash for New Shares: Shares must be newly issued and fully paid for in cash.
Annual and Lifetime Limits: You can raise a maximum of £10 million in any 12-month period, up to a lifetime cap of £24 million. For Knowledge-Intensive Companies, these limits rise to £20 million annually and £40 million lifetime.
Use of Funds: All funds raised must be spent within 2 years of the investment (or 2 years from starting the trade) on qualifying operational activities.
Need Help Navigating EIS?
Ensuring your business meets all HMRC requirements is essential before approaching investors. Contact our team today to get guidance through your Advance Assurance and Compliance Statement submissions