Enterprise Investment Schemes  

Why are there so many companies in the UK offering EIS?

Richard Cook

Richard Cook

There are currently at least 35 investment firms offering the enterprise investment scheme, according to Allenbridge – a large and growing number given this is a relatively niche area of the investment world.

Of course, this was not always the case.

When the UK government first introduced EIS in 1994 there were only a handful of firms operating in this specialist space.

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But as the investment category grew in popularity, so did the number of firms offering EIS products. 

Some comprised of breakaway teams from original firms, while some were new outfits with specialist knowledge in sectors particularly attractive to private investors, including renewable energy and media.

EIS attracted a significant amount of private investment capital that made a major contribution towards helping the UK meet its renewable energy target. 

These firms have continued to evolve. Whatever the changes, be it in terms of organisational direction, approach to EIS investee firms or active involvement in company development, firms are working to meet investors’ ongoing needs around EIS.

Given UK tax rates are among the highest in the world, EIS will likely continue to have a place in a diversified investment portfolio. EIS offers the most comprehensive suite of tax reliefs including income tax relief, and capital gains tax deferral, along with loss relief on investments that fail.

Having been in place for over 25 years, EIS is recognised by investors as a well-established solution. 

The tax benefits, helping to offset the risks of investment, have certainly helped to encourage investment in small, growing firms, which is, after all, the scheme's reason for being.

Since its introduction there has been more than £18bn invested into over 28,000 companies, according to the Enterprise Investment Scheme Association.

These companies, typically expanding rapidly, are a great potential source of employment. For every job created, HM Revenue & Customs should also be receiving income tax and national insurance contributions. 

Furthermore, through the creation of profitable businesses, HMRC should also be receiving corporation tax contributions.

All of this demonstrates the benefits of successful EIS investing for the UK economy, with prestige also attached to building certain sector/industry expertise, making it attractive for international firms.

EIS has become a key form of support for entrepreneurialism in the UK, helping it to grow over the past three decades, now with a thriving start-up eco-system.

Applications by new companies for advance assurance from HMRC have grown alongside EIS, rising over the years, the Association reports.

Advance assurance for funding from within an EIS is the stamp of approval that many companies need for a successful round of fundraising, a key way in which they can become investable. 

Alongside investor and company needs, the ubiquity of EIS offerings rests on its status as a government-backed vehicle. And the UK government continues to show its support for EIS.