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Enterprise Investment Schemes (EIS): is it the right choice for you?

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6 mins read

Updated on 28 March 2025

Our subject expert
Jas Bhogal

Partner - Corporate

If you’re looking to raise early-stage or scale-up funding, the Enterprise Investment Scheme (EIS) could help you secure the investment you need, while offering compelling tax reliefs to potential investors.

This guide is for founders, entrepreneurs and in-house teams who want to understand how EIS works in practice. We’ll break down what the scheme offers, the eligibility rules, and the steps to take before approaching investors. By the end, you’ll know whether EIS could support your funding goals and what you’ll need to qualify.

If you’d like legal support preparing your advance assurance or EIS application, our funding round lawyers are here to help.

What is the Enterprise Investment Scheme?

The Enterprise Investment Scheme is a UK government initiative designed to encourage private investment in early-stage and growing businesses. It does this by offering generous tax incentives to investors who buy shares in qualifying companies.

For businesses, EIS provides a powerful way to attract funding by reducing the financial risk for investors. In return, investors can claim Income Tax Relief, Capital Gains Tax exemptions from profits, and Inheritance Tax Relief, subject to certain conditions.

The scheme is aimed at companies that are early-stage or looking to scale, helping them secure the capital they need for growth, whether that’s developing new products, expanding into new markets, or building their teams.

While the benefits are clear, not every business qualifies. To access EIS, your company must meet specific criteria, including size, trade type, and how the investment is used. In the next sections, we’ll break down the eligibility requirements and what you need to know before applying.

How can the Enterprise Investment Scheme benefit your company

If you’re looking to raise funds to grow your business, the Enterprise Investment Scheme can make your company far more attractive to potential investors by offering them significant tax incentives. This means you’ll have a better chance of securing investment while giving your investors financial security. Here’s how EIS benefits both your business and your investors:

Easier access to investment

Raising money is one of the biggest challenges for early-stage and scaling businesses. Investors are naturally cautious, but EIS reduces their financial risk, making your company a more appealing prospect. With tax reliefs in place, they’re more likely to back your business, knowing they have a financial safety net.

Income Tax relief for investors

One of the biggest incentives for investors is the ability to claim back 30% of their EIS investment as Income Tax relief. This means if an investor puts £100,000 into your company, they can deduct £30,000 from their Income Tax bill. This makes investing in an EIS-qualifying company far more appealing than other opportunities.

Capital Gains Tax (CGT) exemption

Investors who hold EIS shares for at least three years won’t have to pay Capital Gains Tax (CGT) on profits when they sell their shares. If your company succeeds and grows in value, investors can make a tax-free return on their investment, encouraging them to back high-growth businesses like yours.

Loss relief

If things don’t go as planned and your business fails, investors can offset their losses against their Income Tax or Capital Gains Tax. For example, if an investor has a 40% tax rate and loses their entire investment, they could claim back up to 48% of their original investment through tax reliefs. This downside protection gives investors more confidence to invest in your business.

Capital Gains Tax deferral

Investors can defer capital gains tax by reinvesting profits from the sale of other assets into EIS shares. This means they can postpone paying CGT until they sell their EIS shares, freeing up more money to invest in your business.

Inheritance Tax relief

EIS shares are usually exempt from Inheritance Tax (IHT) if held for at least two years. This makes EIS a valuable option for investors looking for tax-efficient estate planning, giving them another reason to back your company.

By offering these tax advantages, EIS helps make your business a more attractive and lower-risk investment. Investors are more likely to take a chance on your company, allowing you to raise the capital you need to develop products, expand into new markets, or hire key staff.

With EIS, you’re not just securing funding, you’re making it easier and more appealing for investors to back your business.

How does an EIS scheme work?

Here’s a quick breakdown of how the process works:

Check eligibility. Your company must be UK-based, have fewer than 250 employees, and operate in a qualifying trade. The investment must be used for growth-focused activities.
Secure advance assurance (optional but recommended). While not mandatory, applying to HMRC for advance assurance reassures investors that your business qualifies.
Issue shares to Investors. Once investors commit, you must issue new ordinary shares, ensuring they are fully paid and have no preferential rights.
Submit an EIS1 compliance statement. After issuing shares, you submit an EIS1 form to HMRC. If approved, they issue an EIS2 certificate, allowing you to provide EIS3 certificates to investors.
Investors claim Tax relief. Investors use their EIS3 certificates to claim 30% Income Tax relief, Capital Gains Tax exemptions, and other tax benefits.
Maintain compliance for three years. Your business must continue to meet EIS rules for three years to protect investors’ tax reliefs.

How can my company become eligible for EIS investment?

To attract investment through the scheme, your company must meet HMRC’s eligibility criteria. If you don’t currently qualify, there may be steps you can take to adjust your structure or business model to become eligible.

Meet the basic criteria

Your company must:

Be UK-based and permanently established in the UK.
Have fewer than 250 full-time employees.
Have gross assets of £15 million or less before the investment.
Be an independent company, meaning it is not controlled by another business.

Operate in a qualifying trade

EIS is designed for businesses involved in trading activities, not passive investment or financial services. Excluded industries include:

Banking, insurance, and financial services.
Property development.
Legal and accountancy services.
Energy generation and farming (some exceptions apply).

If your company operates in a restricted sector, you may need to adjust your business model or ensure investment is directed toward an eligible part of the business.

Use the funds for growth

EIS funding must be used for business growth, for example:

Developing new products or services.
Expanding into new markets.
Hiring staff to scale operations.

It cannot be used to repay debt, buy shares, or finance acquisitions. If your business plan doesn’t align with these requirements, consider adjusting how you plan to use the investment.

Raise funds within the investment limits

Your company must not:

Raise more than £5 million per year under EIS and other venture capital schemes.
Exceed a £12 million lifetime funding cap (£20 million for knowledge-intensive companies).

If you’ve already raised significant investment, check whether you are still within these limits.

Ensure shares meet EIS requirements

EIS investment must be in new ordinary shares with no preferential rights to dividends or capital. If your current share structure doesn’t align with this, you may need to restructure before seeking investment.

Apply for advance assurance

If you meet these requirements, you can apply for advance assurance from HMRC. This is not mandatory but reassures investors that your business is likely to qualify.

What if you don’t qualify?

If your business doesn’t meet EIS requirements, consider:

Reviewing your structure to ensure compliance.
Separating ineligible activities from the core trading business.
Seeking expert legal or tax advice to explore potential solutions.

By ensuring your company meets EIS criteria, you can attract investors more easily and unlock valuable funding opportunities for growth.

Restrictions on exit strategy

EIS investors typically expect a clear exit strategy, such as:

A trade sale.
A public offering.
A buyback (which must not breach EIS rules).

How do I apply for EIS investment?

If you’re looking to use the scheme to raise funds for your business, read our article, How to attract funding to your business with the Enterprise Investment Scheme, for the next steps and application process.

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.

About our expert

Jas Bhogal

Partner - Corporate

Jas is a corporate partner who helps start-ups, high-growth businesses and investors navigate fundraising, investment and the corporate issues that arise as businesses scale.

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