When you invest in EIS, you can claim up to 30% income tax relief – potentially as much as £600,000 a year (or more if investing in Knowledge Intensive Companies). You can apply the relief to the income tax bill of the same or previous year (though 'carry back').
But how do you go about claiming the tax relief in practice?
Below we give a simple step-by-step guide, which you can use as a starting point, although it is not tax advice nor a personal recommendation.
What you need to have on hand to claim EIS tax relief
You will normally claim EIS tax relief when you complete your tax return. You will be asked for some information which is included in your EIS certificates. These are certificates you receive, typically a few months after the investment.
If you invested in a conventional EIS fund, you will typically receive one EIS3 certificate for each of the underlying companies. If you invested in a Knowledge Intensive Approved EIS fund, the fund manager will send you a single EIS5 certificate.
The certificate(s) will confirm:
- The name of the company in which you have invested
- The amount you have subscribed and on which you can claim tax relief
- The date the shares were issued (this is usually different from the date you invested)
- The name of the relevant HMRC office and its reference
What you do next will depend on how you submit your tax return (by post or online). There is also an alternative method to be used in certain circumstances – for instance, if you do not wish to claim tax relief for the same tax year for which you’re submitting the return, or if you don’t habitually file a tax return.
How to claim EIS tax relief on your paper tax return
You will need to complete the “Additional information” sheet (form SA101) and enclose it with your return.
In the “Other tax reliefs” section (“Subscriptions for shares under the Enterprise Investment Scheme”) please write the total amount of all your EIS subscriptions on which you wish to claim tax relief.
How to claim EIS tax relief on your online self-assessment form
In the “Tailor your return” section, you will need to answer “Yes” to the question on other tax reliefs.
When you fill the return, under “Other tax relief and deductions” you will have to type in the total amount of all your EIS subscriptions on which you wish to claim tax relief, and can provide details of each of your EIS investments.
Keep your certificates safe
You cannot claim tax relief until you have received the EIS3 or EIS5 certificates. That said, HMRC doesn’t require you to submit them as part of your tax return, though it may ask you to produce them later. Please ensure you keep them safe.
Tax relief claimed via your tax return will reduce the amount of tax you will have to pay. If you have already paid too much income tax, the excess can either be repaid by cheque or directly into your bank account.
Alternative way to claim EIS tax relief
There is also an alternative way to claiming EIS tax relief. You could complete the claim form you receive alongside your EIS3 or EIS5 certificates and send it to your HMRC tax office.
There are some circumstances when you should use this method. These include:
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if you want to claim the tax relief against a previous year. This could be the case if you wish to use “carry back” or if you didn’t receive your EIS3 or EIS5 certificate in time for the tax return deadline.
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if you pay tax via PAYE and want to receive the tax relief through an adjustment of your tax code – this might be an option if you have invested in EIS and received your EIS3 certificate early in the tax year. You will also have to enter details of the claim when you file your tax return.
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if you want to claim deferral relief as well as income tax relief.
In addition, you could use this method if you don’t habitually file a tax return – for instance, if all of your tax is paid at source through PAYE.
As mentioned above, this is not tax advice. If in doubt, please consult HMRC’s full guidance on the subject, or speak to your accountant.
What about claiming Capital Gains Deferral Relief?
To claim Deferral Relief, you must complete the claim form attached to your EIS certificate and attach it to the Capital Gains Tax summary pages of your tax return.
Please bear in mind
You cannot claim more income tax relief than what you owe in income tax in any tax year. You can only claim tax relief on the first £1,000,000 invested in any single tax year (£2,000,000 if at least £1,000,000 is invested in Knowledge Intensive companies). If you dispose of EIS shares within three years of the date of issue, you will have to let HMRC know and repay any upfront tax relief claimed