The EIS age requirement: is your company eligible?

What is the EIS?

The Enterprise Investment Scheme (EIS) is a government scheme that allows investors to claim a number of reliefs when investing in start-up companies. The objective of the scheme is to encourage investment in higher risk early start-up companies, to enable their businesses to grow, and in turn, boost the economy. To qualify for the scheme, a company must meet a number of requirements, including one relating to its age.

(See our table on the reliefs available to investors at the end of this article.)

Does my company meet the age requirement?

To ensure the EIS is only being used by target companies, a company will qualify for EIS for seven years only after its first commercial sale. This is referred to as “the initial investing period”. After this time, it’s expected that the company have been trading for long enough that the risk faced by investors is sufficiently reduced.

Companies that are knowledge intensive (KIC) have an extended age limit of 10 years from their first commercial sale (or the end of the period in which the company reached £200,000 in turnover). This extension is given on the basis that there will be additional time and funds needed to carry out research and development in creating IP. Where the company is not within the initial investing period, there are three conditions that provide an exemption: Conditions A, B, and C.

Is my company exempt via Condition A?

Condition A allows a company to receive EIS investment as follow-on funding — providing the relevant investment was received before the end of the initial investing period, and some or all of the funding is going be used for the same qualifying business activities as the initial funding. The company must be able to prove to HMRC that this additional follow-on funding was foreseen at the time of the initial investment. in the company’s business plan to qualify for this condition.

Is my company exempt via Condition B?

If a company’s been trading for more than seven years and is entering a new product or geographic market, it’s recognised that the risk profile of an investment is increased, meaning the risk mitigation afforded by EIS is required to get investment.

The aim of Condition B is to help companies entering a new growth phase rather than those growing in small incremental steps. Therefore, all the money raised must be used on the new activities and meet the following conditions:

  • The 50% turnover test — the relevant investments, together with any other relevant investments made within a 30-day period. The amount must be at least 50% of the company’s average annual turnover averaged over the previous five years; and
  • The money must be used for entering a new product market or geographic market, or a new product market and new geographic market.

Is my company exempt via Condition C?

Condition C allows a company who previously met Condition B to raise follow-on funding if some or all of the money is to be used for the relevant qualifying business activity.

Reliefs available to investors

Type of Relief  Amount
Income Tax ReliefAn Investor can claim up to 30% income tax relief on the EIS investment.  
Capital Gains Tax Exemption on DisposalAn investor will be exempt from capital gains tax on sale of the shares.
Share Loss ReliefAn investor can offset a loss made by the disposal of shares, less any income tax relief they have received against the current or previous year.
Capital Gains Deferral ReliefAn investor can defer payment of capital gains tax when the proceeds from their gain are invested into EIS shares.