- EIS investors get 30% income tax relief on up to £1m invested each tax year
- Investors can only claim once your company issues them an EIS3 certificate
- Shares must be held for at least 3 years or the relief is withdrawn
Claiming EIS tax relief gives your investors 30% income tax relief on up to £1m a year, provided your company follows HMRC’s rules from the share issue onwards. Many founders get SEIS/EIS advance assurance first, so eligibility is checked before the raise. This guide covers how each relief works and where founders slip up.
How does EIS tax relief actually work for founders?
EIS tax relief reduces the risk investors take when they back early-stage companies. In exchange for buying new ordinary shares, investors get tax relief, and you raise capital without adjusting valuation mechanics to compensate for that risk.
The catch is that EIS is conditional. HMRC expects your company to qualify when the shares are issued and to stay compliant for the minimum holding period. If eligibility breaks at any stage, investors can lose their relief.
That’s why it’s worth understanding the EIS investment time limit before you issue shares or accept funds.
Tip: Before you spend time pitching investors, check that your qualifying trade is clear and documented. HMRC looks at what your business actually does when shares are issued, rather than what you plan to do later. Mixed trading, unclear activities and future pivots are a common reason EIS relief gets challenged after the round has closed.
What EIS tax reliefs can investors claim?
EIS tax relief is made up of several separate reliefs that together improve investor outcomes. Investors may be able to claim:
- Income tax relief
- Capital Gains Tax exemption on disposal
- Capital Gains Tax deferral on other gains
- Loss relief if the investment fails
Each relief is tied to specific compliance rules, and losing one often means losing others. Treat EIS as a commitment that runs for at least three years after the raise.
How does EIS income tax relief influence investor decisions?
EIS income tax relief lets investors cut their income tax bill by 30% of the amount invested, on up to £1m a year (or £2m if at least £1m of that goes into knowledge-intensive companies). That’s a lower rate than SEIS tax relief, which gives 50% on up to £200,000, but EIS lets investors put far more into each round.
From a fundraising point of view, this changes investor behaviour:
- Investors are more willing to back earlier-stage companies
- Cheque sizes are often larger
- Funding rounds close faster
To qualify, shares must be newly issued, full-risk ordinary shares that carry no special rights to the company’s assets. Many founders accidentally invalidate relief by misunderstanding how shares and ownership work, so it’s worth reviewing how equity works before you finalise your cap table.
Why is the three year holding period critical?
The three year holding period is one of the most common reasons EIS relief is clawed back. Investors must hold their EIS shares for at least three years from the later of:
- The date the shares are issued
- The date the company starts a qualifying trade
If shares are sold early, or the company stops meeting EIS conditions during this period, HMRC can withdraw relief already claimed. That’s why compliance after funding matters as much as the raise itself.
Take extra care when you change business activities, acquire other companies or restructure. Moving into non-qualifying activity can trigger issues similar to those explained in trading vs non trading for corporation tax.
How does Capital Gains Tax relief affect fundraising conversations?
EIS offers two separate forms of capital gains tax relief, and both appeal to experienced investors.
First, if EIS shares are held for at least three years and the income tax relief hasn’t been reduced or withdrawn, any gain on disposal is free from Capital Gains Tax.
Second, investors can defer Capital Gains Tax on gains from other assets by reinvesting them in EIS shares, from one year before to three years after the original sale. This capital gains tax relief often appeals to investors who’ve recently exited a business or sold assets. The mechanics are covered in EIS deferral relief, but the founder takeaway is simple: investors can put those gains into your company instead of paying the tax straight away.
What happens if the company fails and investors make a loss?
Loss relief is a major reason investors are willing to accept early-stage risk. If EIS shares are sold at a loss, investors can set the loss, less any income tax relief already given, against their income for that tax year or the year before. That cuts the effective downside significantly.
Your responsibility as a founder doesn’t shrink, though. Loss relief only applies if EIS conditions were met up to the point of failure, and a compliance breach removes this protection entirely.
Who can and cannot claim EIS tax relief?
Not every investor qualifies for EIS tax relief, so check this before you accept funds. In broad terms, investors can’t usually claim if they’re connected with the company, which covers anyone who:
- Holds more than 30% of the company’s shares, voting rights or assets on a winding up, together with their associates
- Is employed by the company, including most paid directors
- Receives disallowed benefits or has an arrangement that protects their investment
The rules differ from SEIS and are often misunderstood. If you’re unsure which scheme fits your raise, check the difference between SEIS and EIS to see which route suits your stage and investor profile.
Why do founders apply for advance assurance before raising?
EIS advance assurance lets you ask HMRC, before you raise, whether your company is likely to qualify. It isn’t a guarantee, but it gives investors confidence that the structure has been reviewed and reduces friction during the raise.
Many failed EIS claims stem from issues that could have been spotted early, including the SEIS and EIS 10 common pitfalls. For founders raising serious capital, advance assurance is often the difference between a smooth close and prolonged delays.
Want an accountant to handle this?
You can apply to HMRC yourself, and if your structure is simple and your round is small, that’s a reasonable route. Help pays off on the detail HMRC checks most closely: your qualifying trade, your share rights and your investors’ connections.
Sleek’s accountants handle this through our SEIS/EIS Advance Assurance service, covering:
- An eligibility check before you approach investors
- Your application, supporting documents and HMRC’s follow-up questions
- The EIS1 compliance statement and EIS3 certificates once you’ve raised
If you’d like a startup accountant on your books and Corporation Tax as you grow, the same team can pick that up, leaving you free to focus on investors and customers.
How Sleek helps with claiming EIS tax relief
EIS tax relief only works for your investors when it’s set up correctly from day one. Share structure, timing, eligibility and ongoing compliance all decide whether they can claim it and keep it.
Sleek supports founders from eligibility checks and EIS advance assurance through to the compliance work after the raise. Once you’re trading, our limited company accountant service keeps your filings on track through the three year holding period, and our investor scheme FAQs cover the quick questions in between.
Sleek gets your company ready for claiming EIS tax relief
Our accountants check your eligibility, prepare your advance assurance application and handle the certificates your investors need to claim.
FAQs on claiming eis tax relief
What companies are eligible for EIS investment?
EIS-eligible companies must be unquoted, have a permanent establishment in the UK and carry on a qualifying trade. Most must take their first EIS investment within seven years of their first commercial sale, have fewer than 250 full-time equivalent employees and hold gross assets of no more than £30m before the share issue and £35m straight after, according to HMRC’s EIS guidance for companies. Mixed activities are where founders most often misjudge eligibility.
What are the risks of EIS investments?
EIS shares are high risk and illiquid, because there’s usually no ready market to sell them in. Companies can fail, and relief can be clawed back years later if the conditions are breached. For founders, the biggest risk is structural, since errors in share rights, timing or investor eligibility can invalidate relief for your investors.
How do investors claim EIS tax relief on their tax return?
Investors need an EIS3 compliance certificate from your company first, or form EIS5 from the fund manager if they invested through an approved fund, and HMRC doesn’t issue these to investors directly. For the current tax year they can ask for a PAYE tax code change or an adjusted Self Assessment payment on account, and for a past year they claim on their Self Assessment tax return. Our guide to EIS tax relief rates and how to claim walks through each step.
When is the deadline for claiming EIS tax relief?
Investors can claim up to five years after the 31 January following the tax year in which they invested. They can also treat some or all of the investment as made in the previous tax year, which helps if their tax bill was bigger that year. Relief can only reduce income tax actually due, and unused relief can’t be carried forward.
When can a company submit its EIS compliance statement?
You can submit form EIS1 once your company has carried out its qualifying business activity for four months. The deadline is two years after that date, or two years after the end of the tax year the shares were issued in, whichever is later. You’ll need a new statement for every share issue, and your investors can’t claim until HMRC approves it.
Can my accountant do this for me?
Yes. A director, the company secretary or an authorised agent can submit your EIS1 compliance statement, and an agent needs a signed letter dated within the last three months confirming they can act for you. Sleek’s accountants prepare and submit advance assurance applications and compliance statements through our SEIS/EIS advance assurance service.
