The Enterprise Investment Scheme: Powering the UK Economy

In the UK certain initiatives play an outsized role in shaping our economic landscape whilst going often underheard. In the UK, one such initiative is the Enterprise Investment Scheme (EIS). which is a powerful engine for growth, innovation, job creation and vital to the health of the British economy. 

What is the Enterprise Investment Scheme (EIS)? 

At its core, the EIS is a UK government-backed venture capital scheme designed to encourage private individuals to invest in small, higher-risk, unquoted companies. It offers a generous package of tax reliefs to mitigate some of the inherent risks associated with investing in early-stage businesses. 

Why does it exist? There is a Funding Gap for Start-ups.

The EIS was launched in 1994 to address a critical challenge: the “equity gap.” Early-stage companies, especially those with innovative technologies can struggle to secure traditional bank loans or attract large institutional investors. They are too small and too risky for mainstream finance, yet they are precisely the companies that can drive future economic growth. 

Source: https://www.oneplanet.capital/ 

In the UK we are not as risk prone as the US and without some extra help there would be thousands of ideas and companies that would not receive the capital needed. 

The government recognised that without external capital, many promising start-ups would simply fail to get off the ground or would struggle to scale, taking their potential for job creation and innovation with them. The EIS was designed to bridge this gap by making it significantly more attractive for individuals to put their capital into these vital businesses by gaining a host of powerful tax incentives. 

Why is the EIS so Important for the UK Economy?

The benefits of the EIS companies ripple throughout the UK economy in several crucial ways, as demonstrated by recent data from the Beauhurst EIS 30th Anniversary Report (2024).

• Fuelling Innovation and Growth on a Massive Scale: The UK has a global reputation for innovation, from tech start-ups to biotech breakthroughs. However, innovation needs fuel. EIS investments provide that critical early-stage capital, allowing entrepreneurs to develop their ideas, build prototypes, conduct research, and bring their products and services to market. The report highlights the sheer scale of this impact:
  • Over £30.5 billion has been invested into EIS companies since the scheme’s inception. 
  • This staggering figure has supported over 35,000 businesses 

• Driving Substantial Job Creation: Small and medium-sized enterprises (SMEs) are the backbone of the UK economy, employing over 60% of the private sector workforce. EIS-backed companies generated 2.2 million new jobs between 2012 and 2022. 

• Boosting Productivity and Economic Output: Investment in new technologies and business models leads to increased productivity – producing more output with the same or fewer inputs. EIS companies are often at the forefront of this, driving efficiencies and developing solutions that can benefit other sectors and the economy as a whole. The Beauhurst report calculates that EIS companies have contributed £330 billion to UK Gross Value Added (GVA) since 2012. 

How EIS can fit into your financial plan 

To explore how EIS works in real-life planning, we sat down with Chris Hallam, Head of Financial Planning at First Wealth, who regularly helps clients use EIS as part of their broader wealth strategy. 

Chris explains: 

“We don’t see the Enterprise Investment Scheme as just another investment. Used in the right way, it can help diversify portfolios, create tax efficiency, and open up opportunities that traditional assets cannot. We use EIS alongside other planning strategies, not in isolation. It’s always about context: how this fits with your goals, your appetite for risk, and your long-term plan.” 

“Big income tax liabilities, looming CGT bills, or simply looking to diversify? We use our deep knowledge of this space to help clients build EIS into their wider plan where it adds real, lasting value.” 

“Of course, it’s important to recognise that EIS is not without its risks. These are early-stage, unquoted companies, so performance can be more volatile than mainstream investments and shares may be harder to sell. There is no guarantee that the companies will succeed, and if they do not, both capital and the associated tax reliefs may be lost. That’s why we see EIS as a complement to, rather than a replacement for, a broader financial plan.” 

More than a Tax Break 

The Enterprise Investment Scheme is more than just a tax break; it’s a strategic investment in the future of the UK. It acknowledges that risk-takers and innovators are essential, and provides the framework to support them. As the global economy continues to evolve rapidly, the EIS remains a critical tool for ensuring the UK stays competitive & innovative. 

Key EIS stats

• Provided over £30.0b of critical investment to tens of thousands of businesses across the UK 

• EIS backed companies responsible for nearly 400k jobs across the UK in 2023 alone. 

• The UK has more unicorns than Germany and Sweden combined. The fact that the report shows that nearly 50.0% of UK unicorns received investment through the EIS with 46.5% of the UK’s 43 active unicorns benefiting from EIS support 

• The importance of the EIS has been widely recognised by consecutive governments over the last three decades and this cross-party support has continued, with the Labour government recently confirming a 10-year extension of the EIS to 2035. 

EIS/SEIS’s invest in unquoted, growth-oriented companies that involve higher risk than more mainstream companies listed on the main London Stock Exchange and their performance tends to be more volatile. You may experience sudden and substantial falls in the value of your investment. 

There is no guarantee that the qualifying status of the shares will be maintained. This could result in the loss of tax reliefs. 

Shares in unquoted companies may be more volatile and can be hard to sell. An exit is only possible when each individual company is sold. 

This article is for general information only and is aimed at retail clients. 

Guest Author, Declan McEvilly of OnePlanetCapital  

OnePlanetCapital is a specialist EIS investor. Focusing on investing and supporting the most exciting and high growth potential companies and businesses within the climate change and climate technology sectors.  

Declan McEvilly is a director and co-founder at Oneplanetcapital responsible for managing investor relationships and product development. He has been involved in the venture capital industry for 13 years. 

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.