Determine whether your company is eligible for EIS.
Please note, this article is based on the current eligibility criteria and funding limits for SEIS/EIS. Read here for information on the changes coming to the schemes in April 2023.
The Enterprise Investment Scheme (EIS) is a government-backed scheme aimed at companies under 7 years old.
It incentives investors to take a risk on young startups and growing companies as they can claim 30% of their stake back through income tax relief. There’s also zero capital gains tax on all share profits if the shares are held for at least three years, which makes the upside equally attractive (Read here for the rules investors must follow to keep their tax benefits).
You can raise up to £5m each year, and a total of £12m in your company’s lifetime, or up to £10m and £20m respectively if you apply as a knowledge-intensive company. Read here to see the criteria for knowledge-intensive companies.
To qualify for EIS, your company must meet all of the following criteria:
- Trading for less than 7 years. Your company must receive EIS investment within 7 years of its first commercial sale.
- Established in the UK. An essential and substantial part of your business must be carried out in the UK, whether this is a physical site (factory, shop, office) or your main market.
- Not trading on a recognised stock exchange. When you issue the shares to SEIS investors, your company must not be trading on a recognised stock exchange and should have no arrangements to become a quoted (publicly listed) company at the time of the share issue.
- Gross assets below £15m at the time of the share issue and £16m immediately after. HMRC’s general approach is that the aggregate value of your company’s gross assets would be as shown in its balance sheet, without any deduction in respect of liabilities, if you were to draw one up at the time the shares are issued. If your company is the parent of a group of companies, the limit applies to the aggregate value of gross assets of all the companies in the group.
- Fewer than 250 full-time equivalent employees. A full-time employee is someone who works 35 hours or more per week. If you have part-time employees, their hours are added together to make a full-time equivalent employee. For example, someone working 21 hours per week would count as 60% of a full-time employee.
Things get a little bit more complicated if your company has any subsidiaries. If so, your company and its subsidiaries must meet the following criteria:
- Doesn’t control another company that isn’t a qualifying subsidiary. Your company’s subsidiaries must also meet the qualifying trade requirements.
- Owns more than 50% of any qualifying subsidiaries. Your company must own more than 50% of the subsidiary’s shares, and no one other than your company or one of its other qualifying subsidiaries can control this subsidiary. Also, there should be no arrangements to put someone else in control of this subsidiary.
- Isn’t controlled by another company. 50% or more of your company’s shares cannot be owned by another company.
If your company has any subsidiaries, they must be at least 90% owned by your company when:
- The money raised is going to be spent on the qualifying subsidiary.
- The subsidiary’s business is mainly property or land management.
The subsidiary can be set up to complete a project or series of projects before closing, as long as it supports the growth and development of your company.
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