Here we present an easy-to-follow guide to raising capital through the Enterprise Investment Scheme
1: EIS eligibility checklist
First, check that your business is likely to be eligible for the EIS:
- Is it already trading?
- Has it been trading for less than 7 years?
- Is it based in the UK?
- Is it a private, unlisted business?
- Are less than 50% of shares owned by another company?
- Does it have less than £15 million in gross assets
- Does it have fewer than 250 full-time employees
- Does it carry out a trade that does NOT include: property, legal or finance, coal/steel production, farming, leasing, hotels, nursing homes, energy generation?
If you've raised EIS capital before:
- Have you raised less than £5m under the EIS in the past 12 months?
- Have you raised less than £12m under the EIS ever?
2: Obtaining HMRC Advance Assurance
If you can answer YES to all of the above, then the next step is to complete an application to HMRC for Advance Assurance. This relatively simple application will task HMRC with assessing your company's eligibility.
The process can take from 4 to 8 weeks, though HMRC are trying to streamline the process going forward.
If your application is successful, HMRC will send you a statement you can show to your investors saying the investment is likely to qualify.
If your application is NOT successulf, HMRC will tell you why and you can then change your proposal and then resubmit. If you decide to go ahead without making changes, your investors won’t be able to claim tax relief.
3: The fundraise
You can now conduct your fundraise with your chosen partner, or direct with individual investors.
4: Compliance Statement (EIS1)
On completion of your fundraise, and on issuing shares to investors, you will then need to complete a formal application for approval called a compliance statement (EIS1).
You will also need to submit to HMRC, your:
- Business plan
- Memorandum and articles of association
- Last annual accounts and cash flow forecast (if you haven’t submitted accounts yet just provide your cash flow forecast)
- Shareholder agreements or drafts (if you have them)
- Prospectuses and other documents for attracting investment (if you have them)
You must submit the EIS1 and supporting material within 2 years of the share issue, or within 2 years of the end of the tax year in which the shares were issued (whichever is later).
5: Investor tax relief (EIS3)
If your EIS1 application is successful, HMRC will confirm the decision and send you compliance certificates (EIS3) to give to your investors.
Your investors can't claim the tax relief until they receive their compliance certificate from you.
6: Adhering to EIS rules
You must follow the EIS rules for at least 3 years after the investment is made - otherwise tax relief will be withdrawn from your investors. You must tell HMRC if you no longer meet the conditions within 60 days.