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Applying for tax relief under the Enterprise Investment Scheme (EIS) can seem complex, but with the right approach and understanding, investors can successfully navigate the process and benefit from significant tax advantages.
Understanding EIS Tax Relief
Before diving into the application process, it’s crucial to understand what EIS tax relief entails. The scheme offers investors up to 30% income tax relief on investments in qualifying companies, with additional benefits including capital gains tax disposal and deferral reliefs, and loss relief.
Eligibility Criteria
To claim, both the investor and the company must meet specific criteria:
Investor Requirements – further details are available here
- Be an individual taxpayer in the UK
- Not be connected to the company (with some limited exceptions)
- Invest in qualifying shares that are newly issued
- Hold the shares for a minimum of three years
Company Requirements – further details are available here
- Be an unquoted trading company
- Have fewer than 250 employees
- Gross assets must not exceed £15 million
- Must be carrying out a qualifying trade
The Application Process – investing via an EIS Fund Manager
1: Submit a subscription for investment in an EIS Fund
- Complete your application form and provide funds to the EIS Fund Manager
- Tax reliefs apply to the dates of the underlying investments or close date of the fund if you are investing into a Knowledge Intensive HMRC-Approved Fund – they do NOT apply to the date of subscription into the fund.
2: Making Your Investment
- The EIS Fund Manager will invest your money in new shares issued by EIS qualifying companies, ensuring the investment meets EIS requirements
- The EIS Fund Manager will issue EIS3 (for a standard EIS) or EIS5 certificates (for a Knowledge Intensive HMRC-Approved Fund)
3: Claiming Tax Relief
There are two primary methods to make your claim:
A. Self Assessment Tax Return
- Most common method
- Claim relief when completing your annual self-assessment tax return
- Include details of your EIS investment in the relevant section(s)
B. PAYE Code Adjustment
- For investors who want immediate tax relief
- Contact HMRC to adjust your PAYE tax code by filling in the claim form on your EIS3 or EIS5 certificates
- Reduces your monthly tax deductions
- Requires proof of EIS investment (EIS3 or EIS5 certificates)
Documentation Required
To successfully claim, you’ll need:
- EIS3 or EIS5 certificates from the EIS Fund Manager
Key Deadlines and Timelines
- Income tax relief must be claimed within five years from the 31 January following the tax year of investment
- Shares must be held for at least three years from the issue date or tax reliefs may be withdrawn
- Income tax relief claims can be carried back to the tax year preceding investment as well as being made against the tax year of investment
Common Pitfalls to Avoid
- Making tax relief claims against a year not covered by the investment
- Being too closely connected to the company
- Missing claim deadlines
Professional Advice
While you can navigate the process independently, professional tax advice is recommended to:
- Ensure full compliance
- Maximize tax efficiency
- Navigate complex scenarios
- Understand full implications of the investment
Online Resources and Support
HMRC provides several resources to help investors:
- Online guidance on EIS tax relief
- Detailed technical manuals
- Contact information for specific queries
Conclusion
Applying for EIS tax relief requires careful attention to detail, proper documentation, and understanding of the scheme’s requirements. By following the correct process and maintaining thorough records, investors can successfully claim and support innovative early-stage businesses.
Parkwalk Advisors Limited (Parkwalk) is authorised and regulated by the Financial Conduct Authority: FRN 502237. Investments referred to in this news article are not suitable for all investors. Capital is at risk and investors may not get back the full amount invested. Any investment in a Parkwalk product must only be made on the basis of the terms of the full Information Memorandum. Tax treatment depends on the individual circumstances of each investor. Parkwalk is not able to provide advice as to the suitability of investing in any product. Past performance is not a reliable indicator of future results. This financial promotion was approved in February 2025.
