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Enterprise Investment Schemes (EIS) in the UK help investors minimise some financial risk associated with financing new business ventures within the first seven years of starting up. EIS is just one of four VC (venture capital) schemes operated by the UK government.

What is EIS?

Under EIS, angel investors purchase shares in startups or newer small businesses, with 30% tax relief available on the price paid for the shares. Loss relief is also available for any shares which are sold at a loss. This makes EIS an extremely attractive option for investors and provides incentives for funding smaller businesses and startups.

Different regulations are in place for knowledge-intensive businesses that conduct a good deal of research, innovation or development. And you can find out more from the government’s website.

Advantages of EIS

Startups and businesses that have only traded for a couple of years are highly likely to experience cash flow issues and may also find it difficult to access additional loan funds for growth and expansion. It’s very easy for a business to reach an earnings plateau, where business expenses and available capital are virtually level pegging and there is no funding to maintain the momentum of the business. With EIS, it’s possible for a small business to raise up to £5mn in one year, and up to a maximum of £12mn per company.

EIS can be an extremely attractive investment vehicle for angel lenders, as it offers substantial tax breaks to both existing and new investors. Small businesses and startups will find that registering for EIS can be a valuable way to attract angel investors prepared to take on what are perceived as higher risk loan ventures.

Applying for EIS

HMRC administer EIS and carry out all eligibility checks required to ensure small businesses are in compliance with the scheme’s regulations. Any business is required to have been trading for a minimum of four months and EIS forms should be submitted to HMRC up to two years following the tax year in which any shares were issued.

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