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CLASSIFICATION OF EIS
APPROVED:
Having EIS approval has certain
advantages for investors in respect of
Income Tax relief. If the approved fund
satisfies the rules in section 251 ITA
individual investors will be able to obtain
relief on the date the fund closes, rather
than the date when the actual underlying
investments are made. Instead of receiving
an EIS3 certificate for each investment,
the managers of approved funds will send
a form EIS5 covering all the investments
made on the investors behalf – as long
as underlying companies meet HMRC
criteria for EIS approval and once 90% of
the fund capital has been invested (within
12 months of the closing of the fund).
UNAPPROVED:
The EIS is administered in HMRC by the
Small Company Enterprise Centre (SCEC).
The SCEC decides if a company and a share
issue qualifies for the available tax reliefs.
Unapproved companies must apply to
the SCEC who then takes responsibility
for checking the accounts etc. of the
company to ensure that it continues to
meet the requirements of the Scheme.
Investors cannot claim tax reliefs from
EIS investments until the underlying
company (or manager) sends them an EIS3
form to complete and return to HMRC.
ADVANCE ASSURANCE:
The SCEC also operates an advance
assurance scheme, whereby companies
can submit their plans to raise money,
details of their structure and trade
etc. before the shares are issued. The
SCEC will advise on whether or not the
proposed issue is likely to qualify for EIS
relief. Companies are not required to
obtain advanced assurance, but it may
be prudent, particularly for companies
using the EIS for the first time, to do
so. This gives them an opportunity to
spot any problems before shares are
issued, and advanced assurance from
the SCEC is also useful for companies
to show to potential investors.
INVESTMENT LEVELS
Lower minimum investment levels
show how accessible a market is for
investors. Based on our data, the
minimum investment in EIS ranges from
as little as £400 to as high as £100,000,
with an average of just over £15,000.
Examining single company investments
and discretionary managed funds/
portfolios separately gives us more insight.
Single companies have lower average
minimums at just over £13,000. However,
this average is misleading and hides a
large number of products that have low
minimums: the median entry level is
£10,000 and the 1st quartile is just £5,000.
Minimum investment levels for funds
and portfolios start between £2,000 and
£50,000 and have an average of just over
£16,000. Funds generally have higher entry
levels as monies are split across a number
of underlying companies, and therefore
more capital is required to ensure the
portfolio is sufficiently diversified. However,
there are a number of managed funds/
portfolios that start at £10,000 which
makes this a relatively accessible asset
class for a wide demographic of investors.
These lower entry levels are closely
linked to the size of the fundraise. Single
companies typically have lower initial
fundraises, with an average fundraising
target of £3.79m and several companies
aiming to raise less than £1m.
This is logical: single company fundraises
are usually targeted at small groups of
knowledgeable investors who have some
experience or connection with the sector or
firm and the amount of investment required
is obviously much lower than it would be
for a fund making a number of investments
across several companies. Funds
generally have much higher fundraising
targets. The lowest targeted amount is
£1.2m, but the average is £12.84m.
Low High Average
Single
Company
£175k £15m £3.79m
EIS Fund/
Portfolio
£1.2m £75m £12.84m
There are also a number of evergreen funds
which have no upper limit to their
fundraising, but of course they do need to
ensure that they have a pipeline of suitable
underlying companies to invest in.
EIS STATUS
In order to qualify for tax relief the
underlying companies must meet
certain criteria prescribed by HMRC. EIS
investments can either be ‘approved’
or ‘unapproved’ or can gain ‘advance
assurance’ from HMRC that the underlying
companies will likely meet the set criteria.
29% of the investments included in
this analysis have achieved advance
assurance status before they were
marketed to investors. This is a relatively
new innovation and we forecast that this
number will increase in the future.
The majority of investments (54%) choose
to start their marketing activity while
still unapproved. This gives increased
flexibility to both the investment manager
and investors as it means that there is no
HMRC imposed time limit for deploying
funds and investors can claim their
tax relief as investments are made.
With an approved EIS (only 17% of
investments) the investor receives tax
reliefs on the closing of the fundraise
or once 90% of funds raised have been
invested into underlying EIS qualifying
companies. This puts more pressure on
managers to invest swiftly and also means
investors may have to wait a number of
months before receiving tax benefits.
EIS STATUS
Min.
Max.
Average
Single
Company £400 £100,000 £13,195
EIS Fund/
Portfolio £2,000 £50,000 £16,131
(1998-2014)
“Of the 244 investment offers analysed for this report, only 16% of those appear to be open to new
investment which typifies the constantly evolving nature of early-stage investing”
Unapproved
