In March this year HMRC announced changes to the Enterprise Investment Scheme (EIS) and Seed EIS rules. However the changes cannot take effect until approval has been received from the European Commission under EU State Aid rules. The timing of these changes is uncertain but hoped to be in this tax year. The EU Commission could require retrospective implementation of some of the rules, particularly in relation to a total investment cap rule and first commercial sale rule so care will need to be exercised in these areas.

The new rules will:

  • require that all investments are made for the purpose of business growth and development;
  • require that all the EIS investors are independent from the company at the time of the first share issue;
  • exclude companies which have made commercial sales more than 12 years previously unless the company has received a prior EIS investment. The rule will not apply where the total investment represents more than 50% of the annual turnover averaged over the preceding five years;
  • cap the total EIS investment to £15 million although certain knowledge intensive companies may receive up to £20 million;
  • set the employee limit for knowledge intensive companies at 499, as opposed to the general limit of 249.

A further change in the rules for Seed EIS took effect from 6 April 2015 in any event, being the removal of the requirement that 70% of Seed EIS monies must be spent before EIS funds can be raised by a company.

Edwin Coe LLP is the leading EIS law firm specialising in Seed EIS and EIS fund and investment work. We regularly feature in the annual EIS Association Awards and received Highly Commended for the Best EIS Legal Adviser 2014.

If you would like any further information about this or related topics, please contact our Partner Victor Hawrych.

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

Edwin Coe LLP is a limited liability partnership registered in England and Wales (No. OC326366) and is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office: 2 Stone Buildings, Lincoln's Inn, London WC2A 3TH. "Partner" denotes a member of the LLP or an employee or consultant with the equivalent standing. Our privacy notice which we are obliged to give you under the GDPR is available here.

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