What is EIS and how does it support growth-stage startups?
Short Answer
The Enterprise Investment Scheme (EIS) provides UK investors with 30% income tax relief on investments in eligible companies, with capital gains exemption and loss relief.
Full Explanation
The Enterprise Investment Scheme (EIS) provides UK investors with 30% income tax relief on investments in eligible companies, with capital gains exemption and loss relief.
EIS is designed for slightly more mature startups than SEIS. Qualifying companies must have less than £30M raised, fewer than 250 employees, and be developing a novel product/service. Individual investors receive 30% income tax relief on investments between £500 and £1M per tax year. For a £1M investment, an investor receives £300K tax relief. Capital gains are completely exempt from tax if shares held 3+ years. If shares fall in value, investors can claim loss relief against other capital gains. For founders, EIS is attractive for Series A/B fundraising because the tax incentive makes it easier to attract UK HNW investors. However, compliance is strict: HMRC reviews EIS eligibility and can retroactively deny relief if conditions are not met. Common issues include: investment in property (not eligible), acquiring existing business (not creating new value), or spending on certain activities (advertising doesn't qualify; R&D does). Working with a tax adviser familiar with EIS is critical. For startups raising from angel networks or syndicates in the UK, ensuring EIS eligibility before marketing the round can materially increase demand and valuation.
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Further Reading
What is the IAS 38 revaluation model for intangible assets?
IAS 38 permits revaluation of intangible assets to fair value if an active market exists, but this is rarely used in practice because active markets for most intangible assets do not exist.
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