The complete guide to EIS compliance

Congratulations! You’ve successfully won over investors, the money’s landed in your account and the share certificates are out. Now you just need to tie up the loose ends and sort out EIS compliance.

There are several stages to getting your investors the EIS tax relief they expect. We’ve put together this guide to break down the steps involved.

• A quick introduction to EIS
• Follow three EIS compliance steps to give investors their tax relief
• You have two years to complete EIS compliance
• To stay EIS-compliant, you have to follow EIS rules for three years
• There are some limitations on how you can spend EIS funds
• We put the ease in EIS compliance
• Talk to the funding experts

A quick introduction to EIS

If this is the first you’re hearing of EIS, then here’s a lightning-fast explanation.

The Enterprise Investment Scheme (EIS) is a UK government scheme that rewards individuals (not companies) who take the risk of investing in new businesses. The reward comes in the form of tax relief that investors can claim after you have issued their shares.

There are two similar schemes that startups use. SEIS (Seed Enterprise Incentive Scheme) is for very young, seed-stage companies, while EIS is for larger businesses that are a little more established. You can read more about the differences between the schemes in What are SEIS & EIS?

These schemes are so essential to the UK startup scene that investors often want confirmation before they invest that your company is eligible and that they’ll get their tax relief. Many companies apply for SEIS and EIS Advance Assurance to prove to investors that they meet the various rules and requirements of the schemes.

Follow the EIS compliance steps to give your investors their tax relief

EIS Advance Assurance is the stamp of approval an investor wants to see before they part with their money. EIS compliance completes the process.

After you’ve received the investment and issued the share certificates, it’s time to get the ball rolling on the EIS compliance process.

There are essentially three stages to getting EIS compliance, and three documents:

• The EIS1 compliance statement is the company’s application to HMRC
• The EIS2 form is HMRC’s official approval of the company’s EIS status (and contains the UIR number your investors need to claim the tax relief)
• The EIS3 compliance certificates give investors a way to claim their tax relief

Step 1 – complete the EIS1 compliance statement

First, you need to submit the EIS compliance form (EIS1). You can find the form via this gov.uk page, but it’s much easier to use the SeedLegals workflow to generate it for you.

As part of your application, you’ll need to submit supporting documents like the memorandum and articles of association.

If you’ve already submitted and received EIS Advance Assurance, you don’t need to re-submit information that shows why and how you’re eligible for the scheme (like your pitch deck or financial projections) – unless something has materially changed in the intervening period.

If you haven’t got Advance Assurance, this is when you need to provide proof that you meet EIS requirements. The main supporting documents you’ll need to submit are:

• Your business plan and financial forecasts OR your pitch deck and other fundraising materials
• Details of the trades and activities your business will be involved in
• Information about how you meet the risk to capital condition
• Latest bank account statements
• An up-to-date copy of the memorandum and articles of association

You’ll need to complete an EIS1 statement for each share issue you make. If you use SeedLegals to complete your EIS compliance, we make it quick and simple to sort out the legals for multiple investors. See how we can help >>

To submit the completed EIS1:

• email [email protected]
• or send a paper copy to:

Venture Capital Reliefs Team
WMBC
HM Revenue and Customs
BX9 1BN

Step 2 – get back the EIS2 form from HMRC

HMRC will review your application and you should receive an answer in 2-4 weeks.

To confirm you’ve passed the checks, you’ll receive form EIS2. This will give you a Unique Investment Reference (UIR) number for each share issue. This is the magic number your investors need to claim tax relief.

Step 3 – give your investors their EIS3 compliance certificates

The EIS2 is your company’s confirmation that you’re EIS-compliant. EIS3 certificates confirm to investors that their investment is eligible for EIS tax relief. The certificates show the Unique Investment Number HMRC assigned to the shares, and investors need them to claim the tax relief they’re owed.

When you do your EIS Compliance on SeedLegals, we automate the process of generating the EIS3 certificates, so you can get everything done in a couple of clicks.

You have two years to complete EIS compliance

Timing is important when it comes to EIS compliance. You can only submit your compliance statement when you’ve been trading for four months. You must submit it within two years of this date, or within two years of the end of the tax year in which the shares were issued (whichever is later).

In reality, your investors won’t be shy about pushing you to complete the EIS compliance steps, so you’re unlikely to miss the two year deadline.

To stay EIS-compliant, you have to follow EIS rules for three years

After your investors have their EIS3 certificates, that’s not quite the end of the process. Your company needs to stay EIS-eligible by following the scheme rules for at least three years after the investment. Otherwise, HMRC can withhold or withdraw the tax reliefs from your investors.

For example, you’ll lose EIS status if you start engaging in an excluded trade within the timeframe, like banking, property development or legal and accounting services.

There are some limitations on how you can spend EIS funds

EIS is designed to support the growth of risk-taking new ventures, so the money you can raise under the scheme comes with a few conditions.

The money you raise with each new issue of EIS shares must:

• Be used to grow or develop your business
• Present an actual risk of loss of capital for the investor
• Not be used to buy all or part of another business
• Be spent within 2 years of the investment or the date you started trading (if later)

Because you must only spend the funds on activities that directly grow your business, you can’t spend it on workspace rent or repaying loans.

We put the ease in EIS

It’s fast and easy to get your EIS compliance sorted on SeedLegals.

Step 1: To get your EIS1 compliance form, simply answer the quick questionnaire on SeedLegals. We provide helpful hint text if you get stuck – and an EIS expert is on hand if you’re unsure about any part of the process.

Upload all your relevant documents and we’ll put everything together into an HMRC-ready bundle for you to download and send to HMRC.

As part of the unlimited expert support you get as a SeedLegals member, we can review everything before you send it off, so you can be confident you’ll get a speedy approval.

Step 2: After you get your EIS2 back and a thumbs up from HMRC, just log back into SeedLegals, enter the Unique Investment Reference numbers, and generate the EIS3 certificates for your investors.

It just takes one last click on SeedLegals to share the certificates with your investors.

Find out more about how to complete your EIS compliance on SeedLegals.

Talk to the funding experts

Ready to get started or have a few questions about EIS? Our funding experts know SEIS and EIS inside out. Book a slot to talk through your funding questions.