The Enterprise Investment Scheme (EIS) explained

If you’re a UK startup in a qualifying trade with fewer than 250 employees, you could be eligible for up to £12 million pounds in investment.

Our experts

We are a team of writers, experimenters and researchers providing you with the best advice with zero bias or partiality.
Written and reviewed by:

If you’re a business owner on the lookout for ways to supercharge your small business growth with pre-seed or seed funding, then the Enterprise Investment Scheme (EIS) could be a potential game-changer for your business’s success. 

The EIS is a government-backed initiative designed to give your business the boost to take it to the next level. It can offer perks for both you and a pool of potential investors. Those putting capital into EIS schemes will likely care about the success of your business – and they’re also rewarded with tax relief for believing in your vision. EIS can open doors to a wider network of supporters, allowing you to secure funding from individuals who might not have otherwise considered investing in your venture.

But that’s not all – the EIS also brings a bunch of other benefits to your doorstep. Think about the possibility of raising up to £12 million for your business. This injection of capital can fuel your expansion plans, help you develop new products or services, and take your business to markets you’ve only dreamed of.

In this guide, we’ll dive deep into the world of the Enterprise Investment Scheme, helping you understand its potential to take your small business to the next level.

What is the Enterprise Investment Scheme (EIS)?

The Enterprise Investment Scheme (EIS) is a government initiative that aims to encourage investment in small UK businesses by offering tax incentives to investors. 

Through the EIS, investors who back qualifying businesses can enjoy significant tax relief on their investments. This scheme not only provides crucial funding to startups and small companies but also rewards investors for supporting their growth and innovation.

How does the EIS work for investors?

This is the exciting part for investors: when you invest in companies that qualify for the EIS, you can claim a tax relief of 30% on your investment. 

The beauty of this scheme is that it’s not just limited to pocket change – you can receive this tax relief on investments of up to £2 million per year. But there’s a caveat – any amount over £1 million must be for shares of one or more knowledge-intensive companies (KICS): a special category of EIS-eligible companies that are typically innovation-based; involved in either scientific research or other intensive research for their initiatives.

Nevertheless, that’s a huge win-win for investors’ wallets, and for the startups they deem worthy of their investment.

How does the EIS work for startups?

Early-stage companies can raise up to a whopping £12 million through the EIS (or up to £5 million in a year). This funding isn’t just a lifeline – it’s a game-changer.

On top of the investment, you can also receive: 

A wide and varied investor pool: as mentioned earlier, one of the EIS’s standout features is its ability to attract a broader range of investors. With the promise of tax relief, individuals who might not have considered investing in startups become more willing to back these fledgling enterprises. This expanded investor base not only provides startups with much-needed capital but also opens doors to potential mentors, advisors, and industry connections.

Deferred capital gains tax (for the businesses): startups often face the daunting prospect of capital gains tax when they eventually sell their shares or assets. However, the EIS comes to the rescue again by allowing startups to defer capital gains tax on any gains made from selling EIS shares. This means that startups can channel their profits back into the business without the immediate burden of tax payments.

Credibility: qualifying for the EIS is not just about gaining access to funding and tax benefits; it also signals credibility and potential to other investors in the future. 

EIS Eligibility Criteria

The EIS eligibility criteria was designed to ensure that the scheme’s benefits are channelled to the businesses that need them most – innovative startups and small companies with growth potential.

  • Your company structure: to be eligible for the EIS, a company must be an unquoted, independent trading company. This means it’s not listed on any recognised stock exchange, and it’s not controlled by another company. Independence is a cornerstone, ensuring that the company isn’t tied to larger entities that might dilute the spirit of innovation the EIS aims to foster.
  • Permanent UK residence: the EIS is all about boosting the British business landscape. So, to qualify, a company must have a permanent establishment in the UK.
  • Gross assets: the size of the company matters, too. Eligible companies must have gross assets of no more than £15 million before the investment. This criterion prevents larger, more established companies from monopolising the benefits meant for smaller startups and businesses with high-growth potential.
  • Employee count: a vital aspect of eligibility is the company’s workforce. To qualify, a company should have fewer than 250 full-time employees. This ensures that the EIS is directed toward supporting enterprises that are still in their early stages and could significantly benefit from the scheme’s support.
  • Qualifying trades: the company’s trade also plays a role. Certain activities, like dealing in land, financial services, legal services, and more, are excluded from EIS eligibility. This ensures that the scheme is focused on businesses that are actively contributing to the economy in ways that align with its goals.
  • Linked enterprises: if your company is connected with other businesses, whether through common ownership or other relationships, you need to be cautious. The EIS has rules to prevent businesses from exploiting the scheme by artificially splitting their activities across multiple entities to gain multiple sets of reliefs.
  • Previous government support: if a company has already received any previous government support, is under the control of another company, or received investments from certain venture capital trusts or other EIS companies in the past, it might not be eligible. These measures ensure fairness and prevent misuse of the scheme.

EIS offers two types of tax relief to incentivise investors to support qualifying startups and businesses:

Income tax relief

Investors who put their money into EIS-qualifying companies can benefit from income tax relief. This means that they can reduce their income tax liability by a percentage of the amount they invest. As previously mentioned, this relief is set at 30% of the amount invested. 

For instance, if an investor puts £10,000 into an EIS-qualifying company, they could receive an income tax reduction of £3,000. 

The tax relief is capped at the amount of income tax an investor owes, and any unused relief can sometimes be carried back to the previous tax year.

Capital gains tax deferral

The second type of tax relief offered by the EIS is related to capital gains tax (CGT)

When an investor sells an asset that has appreciated in value, they typically owe CGT on the gains. However, if an investor sells EIS shares at a profit, they can defer paying CGT on the gains they make from the sale. This means they can reinvest those gains back into other eligible investments without the immediate burden of CGT. 

It’s important to note that the deferral is temporary; investors will still need to pay the deferred CGT when the investor sells their EIS shares unless certain conditions are met, for example:

Reinvestment in EIS or SEIS: if an investor sells EIS shares and immediately reinvests the proceeds into another EIS or Seed Enterprise Investment Scheme (SEIS) qualifying investment, the deferred CGT from the initial sale can be carried forward to the new investment. This allows the investor to keep deferring the CGT until they eventually dispose of the new investment.

Death / bereavement: if an EIS investor passes away, their beneficiaries might be able to inherit the EIS shares without the deferred CGT becoming payable. The beneficiaries can continue to enjoy the deferred CGT benefits until they dispose of the shares.

Gifts between spouses or civil partners: transferring EIS shares between spouses or civil partners is usually not considered a sale or disposal, which means that the deferred CGT liability wouldn’t become due during such transfers.

Investment failures: if an EIS investment fails, meaning that the company goes out of business and the investor loses their entire investment, the deferred CGT may not become payable. 

The CGT liability could potentially be reduced by the amount of loss incurred on the investment.

Important tax note:

The rules and conditions surrounding EIS and CGT can be complex and are subject to change over time

Tax regulations might have evolved since the time of writing this, so it’s crucial to consult with a qualified tax advisor or financial professional for the most current and accurate information that will be better tailored to your specific situation.

EIS vs SEIS: what’s the difference?

You may also have heard about The Seed Enterprise Investment Scheme (SEIS) and be wondering which would be better for you. 

Well, let’s break down the differences. One of the most prominent differences between EIS and SEIS is the investment limits. The Seed Enterprise Investment Scheme (SEIS) is tailored for even earlier-stage startups, and offers even higher levels of tax relief – 50% on your investment, up to £200,000 per year and £250,000 total – to encourage investment in companies at the seed stage. 

This means that SEIS investments are geared towards smaller-scale funding rounds for very early-stage businesses. While the SEIS has a lower investment limit than the EIS, it is still another fantastic way to support startups and reap tax benefits.

The EIS and SEIS both offer attractive tax incentives to investors who support early-stage businesses, but they cater to different investment preferences and risk tolerances. 

EIS is more suited for investors looking to support established startups with moderate tax relief, while SEIS targets those who are more willing to take on higher risk for potentially greater rewards through substantial tax benefits.


The EIS is more than a financial boost for startups – it’s a powerful tool that fosters growth through mutual benefits and collaboration. By attracting investors through tax incentives, providing access to substantial funding, and easing tax burdens, the EIS plays a crucial role in empowering startups to turn their groundbreaking ideas into successful realities. 

Investors who do invest in EIS-qualifying companies not only get to enjoy tax relief but also propel the growth of early-stage businesses. 

So, if you’re looking to be the next big success story in business or make your mark in the world of investment and be part of those stories, the EIS is your ticket to the ride.

Frequently Asked Questions
  • What are the eligibility criteria for the EIS?
    To qualify for EIS, businesses must be independent companies with a permanent establishment in the UK, less than £15 million in gross assets and fewer than 250 full-time employees.
  • What are the different types of EIS investments?
    The investment options are equity investment, where investor returns are tied to the company's performance; Debt investment, where investors provide loans to the company in exchange for interest payments and eventual repayment; and hybrid investments, which combine elements of both equity and debt.
  • What are the risks associated with investing in EIS-qualifying companies?
    Startups and early-stage companies inherently have a higher risk profile due to their unproven business models and market volatility. Diverse investment portfolios can help mitigate some of these risks.
Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.
Back to Top