Raising investment is one of the biggest hurdles for early-stage and scaling businesses. While attracting investors can be challenging, offering them tax-efficient incentives can make your company a far more appealing prospect. The Enterprise Investment Scheme (EIS) is a government-backed initiative designed to encourage private investment in high-growth businesses by offering investors generous tax reliefs.
This article is for founders and entrepreneurs who need funding to grow but may not be sure how to access EIS or use it to attract investment. We’ll explain how EIS works, the eligibility criteria, and the application process, along with practical insights on how to position your business effectively for investors.
While EIS can be a powerful tool, navigating the rules and ensuring compliance can be complex. Engaging legal support can help avoid pitfalls, structure investments correctly, and ensure your business remains attractive to potential backers. Whether you’re considering EIS for the first time or looking to refine your fundraising approach, this guide will help you make the most of the scheme and maximise your chances of securing investment.
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How to apply for the EIS scheme
Applying for the Enterprise Investment Scheme involves more than simply ticking a few boxes. To benefit from the scheme, and to ensure your investors can claim their tax relief, you need to follow the correct process and meet strict compliance requirements.
The first step is obtaining advance assurance from HMRC. While not mandatory, this is a crucial step in attracting investors, as it confirms that your business is likely to qualify for EIS. The advance assurance application should include details about your company, its business activities, financial projections, and how the investment will be used. You’ll also need to provide information about potential investors, though HMRC no longer requires named investors for most applications.
Once you’ve secured investment, you must issue compliant shares and submit an EIS1 compliance statement to HMRC, confirming that the investment meets EIS rules. Only once this is approved can you provide investors with the necessary EIS3 certificates, allowing them to claim tax relief.
In the following sections, we’ll break down each step in detail, ensuring your business stays on the right side of EIS regulations while making the process as smooth as possible for you and your investors.
Cover letter
While not a formal requirement, including a well-structured cover letter with your EIS advance assurance application can help clarify your case to HMRC and reduce the likelihood of delays or requests for additional information.
Your cover letter should be concise and to the point, summarising key details of your application and demonstrating that your business meets the necessary EIS criteria. It should include:
- A Brief Introduction. State that you are applying for advance assurance under the Enterprise Investment Scheme and provide your company’s name, registration number, and relevant contact details.
- Confirmation of Eligibility. Outline how your company meets EIS requirements, such as being a qualifying trade, within the gross assets and employee limits, and not being under the control of another company.
- Investment Details. Specify how much you plan to raise, how the funds will be used for growth and development, and why this qualifies under EIS rules (i.e., the investment will be spent on risk-bearing activities, not repaying existing debt).
- Investor Information. While HMRC no longer requires named investors in most cases, mention whether you have interested investors and confirm that they will be eligible for EIS relief.
- Supporting Documents. List the enclosed documents, such as your business plan, financial forecasts, and company structure details.
- Closing Statement. Politely request HMRC’s confirmation of advance assurance and provide a contact person for any follow-up queries.
A well-prepared cover letter can set a professional tone and demonstrate that you understand the scheme’s requirements, helping streamline the application process.
Amount
You must specify how much you intend to raise under EIS and how the funds will be used to support your company’s growth. This should align with EIS requirement: the investment must be spent on qualifying business activities rather than repaying debt or acquiring another company.
Latest accounts
If your company has filed accounts, include the most recent set of financial statements. This helps HMRC assess your financial position and confirm that your business is actively trading or preparing to trade in a qualifying activity.
Plans and forecasts
Your application must include a detailed business plan, outlining:
- Your company’s activities, market opportunity, and competitive positioning.
- How the EIS investment will be used to drive growth.
- Projections for revenue, costs, and profitability over the next three to five years.
- An explanation of how the company will generate a return for investors.
This section reassures HMRC (and potential investors) that the business has a clear growth strategy.
Details of any previous venture capital schemes
If your company has previously raised funds under EIS, SEIS (Seed Enterprise Investment Scheme), or other venture capital schemes, you must include details such as:
- The amount raised.
- The date of previous funding rounds.
- Confirmation that those investments complied with EIS/SEIS rules.
This ensures that any new funding remains within the EIS investment limits and does not breach the £12 million lifetime cap (£20 million for knowledge-intensive companies).
Memorandum and articles of association
You must provide a copy of your Memorandum and Articles of Association to show the legal structure of your business and any relevant shareholder rights. If you have recently amended these documents (e.g., to issue new shares or comply with EIS rules), include the updated versions.
Miscellaneous information
Depending on your business, you may also need to submit:
- A company structure diagram showing subsidiaries or related entities.
- Details of any advance assurance rejections (if you’ve applied before and been refused).
- HMRC correspondence regarding previous tax or investment queries.
Where do I send my EIS application?
You should submit your application through HMRC’s online portal. This digital submission process is designed to streamline applications and reduce processing times.
Online Submission:
- Access the Online Form: Visit HMRC’s official guidance page on applying for advance assurance:
- Sign In: Use your Government Gateway credentials to sign in. If you don’t have an account, you’ll need to create one.
- Complete the Form: Fill out the online application form, ensuring all required information and supporting documents are included.
Alternative Submission Methods:
If you’re unable to use the online portal, you can submit your application via email or post:
- Email: Send your application and supporting documents to HMRC’s Venture Capital Reliefs Team at enterprise.centre@hmrc.gov.uk.
- Post: Mail your application to:
Venture Capital Reliefs Scheme
HMRC
BX9 1BN
UK
Make sure you include all necessary documents, such as your business plan, financial forecasts, latest accounts, and details of how the funds will be used.
HMRC typically takes up to 7 weeks to process advance assurance applications.
Follow-Up: If you need to follow up on your application, you can email enterprise.centre@hmrc.gov.uk or call 0300 123 3440.
By following these steps and ensuring all information is accurate and complete, you can facilitate a smoother application process for EIS advance assurance.
What happens next with your EIS application?
Once you’ve submitted your advance assurance application, HMRC’s Venture Capital Reliefs Team will assess your application to ensure your business meets EIS eligibility criteria. If they require further clarification or additional documents, they will contact you (usually via email). If your application is complete and meets the criteria, HMRC will issue an advance assurance confirmation, indicating that your company is likely to qualify for EIS investment.
Once you receive advance assurance, you can present it to potential investors as evidence that your business is EIS-eligible. Investors will still need to claim their own tax relief, so it’s essential to ensure that the investment and share issuance comply with EIS rules.
When investors commit, you must issue ordinary shares that qualify under EIS rules. Shares must be fully paid and cannot have preferential rights that disqualify them from EIS. Keep accurate records, as you will need to submit details to HMRC.
After issuing shares, your company must submit an EIS1 compliance statement to HMRC to confirm that the investment meets EIS requirements. You can submit this form at least four months after your company starts trading with the invested funds. HMRC will review your compliance statement and, if approved, issue an EIS2 certificate to confirm compliance.
Once HMRC issues the EIS2 certificate, you can provide EIS3 certificates to your investors. Investors use these certificates to claim tax relief on their investment.
Your business must continue to meet EIS requirements for at least three years after the investment to avoid disqualifying investors from tax relief. Changes such as selling assets, ceasing trade, or issuing disqualifying shares could invalidate the tax benefits for investors.
What If HMRC rejects your application?
If your advance assurance is refused, HMRC will provide reasons for the rejection. You can amend and resubmit your application if you can address the concerns raised. If your EIS1 compliance statement is rejected, you may need to adjust your company’s structure or activities to qualify.
Key takeaways
- Advance assurance isn’t mandatory, but it reassures investors.
- EIS1 compliance must be submitted after investment to enable investors to claim tax relief.
- Your business must comply with EIS rules for at least three years to protect investors’ tax relief.
By following these steps carefully, you can secure EIS status, attract investment, and ensure your investors receive the tax benefits they expect.
Do I need a lawyer for my EIS application?
While it’s possible to handle an EIS application yourself, engaging a lawyer can add significant value and reduce the risk of costly mistakes. EIS rules are strict, and errors can result in HMRC rejecting your application or investors losing their tax relief. A lawyer ensures your business meets the eligibility criteria, from structuring your share issuance correctly to maintaining compliance over the required three-year period.
Lawyers familiar with EIS can prepare a watertight application, including the advance assurance request, cover letter, and compliance statement. This reduces back-and-forth with HMRC and speeds up approval.
Many investors will expect legal oversight to ensure their tax relief is protected. A well-prepared EIS application and investor documentation (such as subscription agreements and share issue documents) can make your business a more attractive investment opportunity.
If your business structure, funding history, or planned use of funds is unusual or borderline, a lawyer can navigate HMRC’s requirements, draft necessary clarifications, and advise on potential risks.
Finally, post-investment, a lawyer can help ensure that any future corporate actions (e.g., issuing new shares, restructuring, or exits) do not accidentally invalidate your EIS status, safeguarding both you and your investors.
For many businesses, the cost of legal advice is small compared to the risk of a failed application or investor tax relief being revoked. A lawyer helps ensure the process is smooth, compliant, and investor-friendly from start to finish.
For more answers to commonly asked questions and advice on the EIS, including expert input into your EIS application or advance assurance request, consult our corporate solicitors. Get in touch on 0800 689 1700 email us at enquiries@harperjames.co.uk, or fill out the short form below with your enquiry.
