Enterprise Incentive Scheme

The Enterprise Incentive Scheme (EIS) is a tax relief scheme. It lets you save on tax by investing in startups and other early-stage businesses. It also benefits the start-ups and the small businesses that you invest in, as it gives them access to funds to help grow their business. EIS is considered to be one of the most tax-efficient investment schemes that’s available in the UK.

Examples of similar tax relief schemes include:

  • Seed Enterprise Investment Scheme (SEIS)
  • Venture Capital Trust (VCT)
  • Social Investment Tax Relief (SITR)
  • Community Investment Tax Relief (CITR)

What tax relief can I get if I invest in EIS-eligible startups?

  • Income Tax relief: you can claim 30% of your investment back from HMRC from the April of the next tax year
  • Capital Gains Tax relief: if you hold the shares for 3 years, you don’t pay any CGT if you sell them for a profit
  • Capital Gains Tax deferral: if you sell the shares for a profit but reinvest all that profit in another EIS, you don’t need to pay any CGT
  • Loss relief: if the startup fails and you lose money, you can also claim relief on your loss. The amount you can claim depends on your Income Tax band: 20%, 40%, or 45%

The Enterprise Incentive Scheme enables you to claim up to £1 million tax relief when you invest in eligible startups, and rises to up to £2 million when you invest in ‘knowledge-intensive’ companies. To claim your relief, you need to file a self assessment to claim your relief. If you usually pay your tax via PAYE, you’ll need to register for Self-Assessment by the 5th October following the end of the relevant tax year.

Frequently Asked Questions

  • What is PAYE?

    PAYE stands for Pay-As-You-Earn and refers to paying your income tax straight out of your wages. You can find this on your payslips and it is automatically deducted from your wages, so you don’t need to do anything about it.

  • What does ‘tax-efficient’ mean?

    You have tax obligations, but there is a chance that you are paying higher rates of tax than you need to, based on assumptions that HMRC may make from your income and expected revenue. To ensure that your accounts are running in the most tax-efficient way possible, contact our experts for a comprehensive consultation!

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