EIS - The Sunset Clause.  A chance to reshape the scheme?

The Enterprise Investment Scheme (EIS) continues to be pivotal in driving the supply of early-stage risk capital to some of the UK’s most exciting companies, while also offering attractive tax breaks to investors.

Recent stats released by HMRC are evidence of its success. For example, in 2019 to 2020, 4,215 companies raised a total of £1,905 million of funds under the EIS.

There is currently a “sunset clause” in place in relation to income tax relief that is offered by the EIS (and indeed the Venture Capital Trust scheme, but interestingly not the Seed Enterprise Investment Scheme (SEIS)) which means that without Government approval, this relief will cease to exist from 6 April 2025. I do not think for a minute that in the post-Brexit era the UK Government will let the income tax relief offered under the EIS to expire so fully expect it to be extended, but a pause point can sometimes be a good point to take stock. By reflecting upon this I have suggested a few areas where the EIS could further be improved.


There is a significant amount of complexity in the legislation that governs the EIS. There are “tripwires” and complex provisions which can easily be misinterpreted or missed, particularly where specialist advice is not sought. Terms like “preferential right”, “risk to capital” and “excluded activities” have a whole range of inherent complexity. While a lot of the legislation, and indeed more recent changes like risk to capital, have excellent and valid intention, they can trip up both the unwary and the uninformed but also perfectly valid cases which were not the target of the initial drafting of legislative updates. Some simplification of the more complicated provisions would be welcomed both from the perspective of the company, but also from an investor perspective. There are also some quite stunning inconsistencies (for example SEIS/EIS in the context of being a Director) which could easily be sorted out.

Legal Drafting

Following on from the point above, the complexity in the drafting can significantly impact legal drafting. While a set of Articles of Association are never easy to read, complicated Return of Capital and Dividend Articles can cause significant confusion. There are of course “EIS friendly” ways of drafting these provisions, but they can be wordy. On more than a number of occasions our team have been scratching our heads trying to work things through; if experienced users are struggling then what chance does the company, the founders or the investors have? There must be an easier way!


We still see many cases where EIS isn’t considered or where it has been placed in either the “too difficult” or “it couldn’t be that beneficial” pile. This should not be the case. As a slight left field comparison, the concept of an Employee Ownership Trust (EOT) gets wide publicity, has straight forward legislative provisions, and is a topic that people can comfortably discuss. An amplification of EIS, outside the walls of the excellent EISA and the advisor network would be hugely beneficial. This just need to cover upfront income tax relief and Capital Gains Tax (CGT) benefit at exit, it should cover loss relief (downside protection) and re-investment relief.

For a tax adviser, EIS is about as exciting as tax relief gets! In our world, income tax refunds and CGT exemptions are easy to talk about. The “sunset clause”, while concerning in theory, presents a real opportunity for change and change for good!

Get in touch

If you would like to discuss this further, please don't hesitate to get in touch with myself, a member of our Entrepreneurial Taxes team or your usual Johnston Carmichael adviser.