The Enterprise Investment Scheme

Enterprise Investment Scheme

The Enterprise Investment Scheme (EIS) was announced in the 1998 Budget. This stated that ‘to get the best out of the country’s entrepreneurs the UK tax system needs to recognise the investment of individuals who nurture promising start-ups into successful businesses.’ The Enterprise Investment Scheme (EIS) is a series of UK tax reliefs launched in 1994 in succession to the Business Expansion Scheme. It is designed to encourage investments in small unquoted companies carrying on a qualifying trade in the United Kingdom

The scheme was launched ‘to help smaller, higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new full-risk ordinary shares in those companies.’ Since its launch ‘almost 22,900 individual companies have received investment through the scheme and over £12.2 billion of funds have been raised.’

In 2013-14 (the last dates for which information is available) 2,795 companies raised a total of £1,563 million of funds. London and the South East account for the largest proportion of investment, with ‘companies in these regions receiving 69% of investment in 2013-14.’ The EIS was reformed in 2011, when the rate of income tax relief on investments was raised to 30%.

The Federation of Small Businesses (FSB) welcomed this, stating that it would ‘provide a much needed shot in the arm for entrepreneurship in the UK.’ An evaluation of the scheme by HMRC in 2014 found that companies that took advantage of the EIS ‘benefited from increased capital investment, employment and sales compared with other companies.’ The Gov.uk website has information for both investors and businesses wishing to become compliant with the scheme.

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