The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.
This guide provides an overview for companies and potential investors who have heard of the Scheme and want to know more about it and how it works. It does not cover all the detailed rules, so companies and investors should not proceed solely on the basis of the information in it, and should consider seeking professional advice.
The information in this guide relates only to shares issued on or after 6 April 2012.
It does not cover the legislation relating to shares issued before that date. Also readers must bear in mind that the reliefs and legislation relating to them may change in the future.
HM Revenue & Customs provides more detailed guidance in the Venture Capital Schemes Manual (VCM), to which this guide occasionally refers.
This guide is divided into two parts:
And there are pointers to additional sources of information at the end.
It is strongly advised that you read both parts, irrespective of whether you are a potential investor or a company considering using the Scheme.
It is important that investors are aware of the rules the company has to observe, not just at the time of the investment but for at least three years afterwards. If it fails to meet those rules tax relief will not be given, or, if it has already been given, will be withdrawn. Similarly, it is important that companies appreciate the conditions to be met by investors, so that shares are not issued on which the investor expects to be able to claim tax relief, only to find that no relief is due.
Both investors and companies should note that no relief will be given (or if it has been given, it will be withdrawn) if any scheme has as its main purpose, or one of its main purposes, the avoidance of tax. (The tax reliefs available under the EIS are of course not considered to be avoidance of tax.)