Let’s Break This Down Together…
Thinking about how to cut down your tax bill and support high-growth UK startups at the same time?
Understanding how EIS (Enterprise Investment Scheme) tax relief works can unlock generous benefits, like 30% income tax relief and Capital Gains Tax exemptions. But with forms, deadlines, and certificates involved, it’s easy to feel overwhelmed.
Don’t worry! This guide will walk you through the essentials, step by step, from how to claim EIS relief on your Self Assessment to what paperwork you’ll need and how to avoid common mistakes. Let’s go!
How to Claim EIS Tax Relief on Self Assessment: Understanding the Process
Enterprise Investment Scheme (EIS) offers a generous 30% income tax relief on investments up to £1 million per tax year. This means for every £10,000 you invest in qualifying early-stage companies, you could receive £3,000 back through reduced tax bills. An EIS qualifying company is one that meets specific HMRC criteria for the scheme.
The scheme encourages investment in smaller, higher-risk UK companies. It rewards investors with significant tax advantages while supporting British business growth. EIS investments can be made directly into an EIS company or through EIS funds, which pool investments into multiple EIS eligible startups.
Besides the initial income tax relief, EIS investments held for at least three years are exempt from Capital Gains Tax. This creates a powerful double incentive for patient investors.
You can claim EIS relief up to five years after the 31st January following the tax year of your investment. This gives you ample time to organise your paperwork. EIS funds are managed by a fund manager, who is responsible for issuing EIS certificates for pooled investments.
Our Pie tax smart assistant can help identify all your eligible EIS investments and calculate your exact relief amount. Or if you’re just here to get to grips with it all, let’s break it down!
The information provided here is for guidance only and does not constitute professional tax advice; please consult a qualified adviser for personalised advice.
Understanding the Types of EIS Tax Relief
The Enterprise Investment Scheme (EIS) is designed to reward investors with a range of valuable tax reliefs.
The most well-known is income tax relief, which allows you to claim back 30% of the amount you invest in EIS-eligible companies, up to £1 million per tax year, directly against your income tax bill.
This can make a significant dent in your income tax liability and is a major incentive for supporting early-stage businesses.
But EIS tax relief doesn’t stop there. Capital gains tax deferral relief lets you defer paying capital gains tax on profits from other investments, as long as you reinvest those gains into EIS shares. This means you can manage your tax liabilities more flexibly, potentially spreading them over future tax years.
There’s also inheritance tax relief: if you hold your EIS shares for at least two years, they can be exempt from inheritance tax, making EIS investments a powerful tool for estate planning.
By combining these tax reliefs, income tax relief, capital gains tax deferral, and inheritance tax relief, the EIS scheme offers a comprehensive package for investors looking to reduce their tax burden while supporting innovative UK companies.
Eligibility for EIS: Who Can Claim?
Not everyone can claim EIS tax relief, so it’s important to check you meet the criteria before investing.
To qualify, you must be a UK taxpayer and invest in a company that meets the EIS scheme’s strict requirements. The company must be a small or medium-sized enterprise (SME), with gross assets of no more than £15 million before the investment and £16 million after, and fewer than 250 full-time employees.
You can claim tax relief on up to £1 million of EIS investments per tax year, or up to £2 million if at least half is invested in knowledge intensive companies (KICs), businesses focused on innovation, research, or technology.
Both the investor and the company must follow the EIS rules to ensure the investment qualifies for relief. Understanding these eligibility requirements is essential for anyone looking to claim EIS tax relief and make the most of the scheme’s benefits.
How to Claim EIS Relief on Your Self Assessment
Claiming your EIS tax relief is straightforward once you have the right documents. Here’s how to do it step by step.
First, log into your HMRC online account. Start or continue your Self Assessment tax return for the relevant tax year. You can claim EIS income tax relief for the same tax year as your investment or choose to carry it back to the previous year.
Navigate to the “Additional Information” pages (SA101). This is where you’ll enter all your EIS investment details. You must provide details of each EIS investment, including the company name, amount invested, and certificate reference.
In boxes 1-3 of the “Other tax reliefs” section, input the investment amount. Make sure you enter the actual amount invested, not the amount of tax relief sought. You’ll also need each company name and the EIS3 certificate reference number.
If carrying back relief to the previous tax year, tick the relevant box. This indicates you want to apply the relief against last year’s income. If you are claiming income tax relief for a previous year, you may need to submit a claim form attached to your tax return or send it directly to the HMRC tax office.
Once you’ve entered all your EIS investments, complete the rest of your tax return. The EIS3 certificate or claim form inside the certificate must be included with your submission, especially if you are not able to amend your online tax return.
Submit your completed return to HMRC by the deadline to ensure your claim is processed. If you are on PAYE, you can request an adjustment to your PAYE tax code to reflect the relief.
When you reach the 'Other tax reliefs' section in your online tax return, select 'other tax relief' to include EIS and similar reliefs.
Throughout this process, you are claiming relief by submitting the necessary claim forms and supporting documents.
Claiming income tax relief and ensuring your claimed income tax relief is properly recorded requires careful completion of the self assessment and submission of all required forms.
Gathering Your EIS Documentation
Before starting your tax return, collect all your EIS3 certificates. These crucial documents are issued by the companies you’ve invested in, usually within a few months. EIS3 certificates are the official EIS certificates required to claim relief.
Each certificate should clearly show your name and the company details. It must also include the amount invested and the date the shares were issued. If you invested through an EIS fund, the fund manager will typically send a single EIS5 certificate covering your investment.
Check that all certificates relate to the tax year you’re claiming for. Or the previous year if you’re using carry-back relief.
If you haven’t received an EIS3 certificate, contact the company directly. You cannot claim relief without this essential paperwork.
Keep copies of all certificates for at least six years. HMRC may request to see them if they check your tax return later. You should also retain any claim form submitted to HMRC for your records.
Capital Gains Tax and EIS: What You Need to Know
Capital gains tax (CGT) can take a big bite out of your investment profits, but the EIS scheme offers two powerful ways to reduce this tax liability.
First, with deferral relief, you can defer paying CGT on gains from the sale of other assets by reinvesting those gains into EIS shares. This means you don’t have to pay capital gains tax immediately, giving you more control over when and how you settle your tax bill.
Second, EIS offers CGT disposal relief. If you hold your EIS shares for at least three years, any gains you make when you sell them are completely exempt from capital gains tax.
This disposal relief can make a huge difference to your overall returns, especially if your EIS investments perform well. By using both deferral relief and disposal relief, you can manage your capital gains tax exposure and keep more of your investment profits.
EIS Loss Relief: Reducing Your Risk
Investing in early-stage companies always carries some risk, but EIS loss relief helps cushion the blow if things don’t go as planned.
If you sell your EIS shares at a loss, you can claim loss relief against your income tax or capital gains tax, reducing your overall tax bill. This applies even if you didn’t claim income tax relief on the original investment.
The amount of loss relief you can claim is based on the loss you’ve made, after deducting any income tax relief already received and any associated fees.
This means that even if your EIS investment doesn’t work out, you can offset some of the loss against your other tax liabilities. EIS loss relief is a valuable safety net, making high-risk, high-reward investments more attractive by reducing the potential downside.
Carrying Back EIS Relief to Previous Tax Years
One of the most useful features of EIS relief is the ability to "carry back" your claim. This lets you apply the relief against the previous tax year's income.
This flexibility can be particularly helpful if you paid more tax last year than in the current year. I once saved nearly £2,000 by carrying back an EIS investment after a high-income year.
To carry back relief, tick the relevant box on your self assessment form. Then enter the investment details as normal.
Remember that your previous year's tax return must already be submitted. You cannot carry back relief to an unfiled tax year.
The amount carried back cannot exceed your income tax liability for that previous year. Any excess will need to be claimed against the current year instead.
Common EIS Self Assessment Mistakes to Avoid
Forgetting to include the EIS3 certificate reference number is a common error. Always have these documents to hand when completing your return.
Double-check all investment amounts before submission. Entering £15,000 instead of £1,500 could trigger an HMRC investigation.
Don't claim for investments where the EIS3 hasn't been issued yet. The relief can only be claimed once you have the certificate in your possession.
Missing the submission deadline will result in penalties. This applies regardless of how valid your EIS claim might be.
If you've made multiple EIS investments, ensure you claim for all of them. It's surprisingly easy to overlook one when juggling paperwork.
Maximizing Your EIS Returns
To get the most out of your EIS investments, it’s important to take a strategic approach. Start by understanding all the EIS tax reliefs available, income tax relief, capital gains tax deferral, disposal relief, and loss relief, and how to claim them.
Keep your EIS certificates and investment records organised, as you’ll need these to support your claims.
Be mindful of the deadlines: you typically have up to five years from the end of the tax year in which you made the investment to claim your reliefs. Consider investing in knowledge intensive companies to take advantage of higher investment limits and enhanced benefits.
And don’t hesitate to seek advice from a tax advisor or financial expert, especially if your tax affairs are complex. With careful planning and attention to detail, you can maximise your EIS tax reliefs and boost your investment returns while supporting the UK’s most innovative businesses.
What to Do After Submitting Your Claim
After submitting your self assessment with EIS claims, HMRC typically processes the relief promptly. This may result in an adjusted tax code, direct refund, or reduced tax bill.
Keep an eye on your personal tax account for updates. Most straightforward claims are processed within a few weeks of submission.
If you haven't received your relief after 8-12 weeks, contact HMRC. Occasionally claims can get delayed in their system.
Save confirmation of your submission and all related correspondence. This creates a paper trail if questions arise later.
HMRC has the right to enquire into your tax return for up to
Keep all supporting evidence safe during this period.
Final Thoughts
Claiming EIS tax relief through self assessment reduces your tax bill while supporting growing UK businesses. The process becomes simple once you understand the steps.
Timing matters for making your claim within the allowed timeframe. Consider carrying back relief to a previous tax year when it might be more beneficial.
If your investments or tax situation are complex, seek professional advice. This helps ensure you maximise your relief and avoid common pitfalls.
With proper record-keeping and attention to detail, you can enjoy the full benefits. The Enterprise Investment Scheme offers significant advantages to careful investors.
Pie tax: Simplifying EIS Tax Relief Claims
Claiming EIS relief shouldn't give you a headache. The UK's first personal tax app makes the whole process smooth and worry-free.
Pie tax's clever dashboard keeps all your EIS investments in one place.
Our real-time calculator shows exactly how much tax relief you're entitled to. This takes the guesswork out of your finances and helps with effective tax planning.
When it's time to submit, our direct HMRC filing ensures your claim goes through correctly.
Fancy seeing how it works? Take a peek at the Pie tax app today.
Your Step-by-Step Guide
Follow these easy steps to ensure your tax reliefs are accurately recorded for your self-assessment:
Open the Pie Tax App and find the 'Quick Add' button in the middle of the navigation bar.Click 'Quick Add' in the Navigation Bar
After clicking 'Quick Add', select 'Add tax relief' from the screen to open the options menu.Select 'Add tax relief'
