EIS Update Post Royal Assent

Writing for UK200Group TaxTalk, BKL tax adviser Stephen Deutsch examines the new rules which apply to shares issued on or after 18 November 2015, the date on which the 2015 Finance Bill received Royal Assent.


Despite HM Treasury’s commitment in its March 2014 Consultation Paper on ‘Tax Advantaged Venture Capital Schemes’ that the ‘government is committed to simplifying the tax system and improving the ease with which taxpayers and businesses understand and interact with it’, the changes to the EIS rules introduced in this summer’s Finance Bill and enacted last month as a consequence of that Consultation provide a further layer of rules to an already complicated arrangement.

The new rules, which apply to shares issued on or after 18th November 2015, the date on which the Bill received Royal Assent, place further limitations on who can qualify for tax relief under EIS, the amount a company can raise and the use of EIS funds.  They include the following measures:

  • An individual cannot subscribe under EIS for further shares in a company if he holds shares (other than Subscriber Shares) unless his existing shares qualified under SEIS, EIS or Social Investment.
  • A company is currently unable to use EIS monies to acquire shares of another company. This is extended to preclude the use of EIS investment to acquire a trade, goodwill or intangible assets.
  • Companies must normally raise their first EIS investment within 7 years of making their first commercial sale (or 10 years if the company is a ‘knowledge-intensive’ company).Unless there has been a previous EIS investment within this initial “window”, EIS relief is available for a share issue only if the purpose of the issue is to raise a substantial amount of money (at least 50% of the company’s annual turnover, averaged over the previous five years) in order to enter a new product or geographical market.
  • The existing cap on annual investments of £5 million remains but is supplemented by a new “lifetime” cap on the total amount of investments a company may raise of £12 million (or £20 million for “knowledge-intensive” companies).  In considering a company’s limits (whether annual or lifetime) regard must now be had to risk finance investments previously made in the company’s subsidiaries (even if made before they joined the group) or in the company’s trades (even if made before the trade was acquired by the company).  This will therefore be yet another check to be added to “due diligence” checklists on acquisitions.

It’s not all a one-way street as three measures are being introduced which relax the existing rules.   One of these, backdated to 6 April 2014, permits EIS investors to retain income tax relief where shares of SEIS investors are redeemed, but only where the SEIS relief on the redeemed shares is repaid.  The second, effective from 6th April 2015, removes the requirement that 70% of SEIS funds must be spent before an EIS investment may be made. The final measure allows a ‘knowledge-intensive’ company with up to 500 employees to qualify for EIS investment although the limit of 250 employees remains unchanged for all other companies.

The EIS rules are not without complications and pitfalls for the unwary and these new additions to the EIS code neither assist start-ups to easily attract qualifying investors nor do they simplify the administration of the EIS risk finance arrangement.


This article is also available via the UK200Group website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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