If you’re a small business owner you may have heard of EIS (Enterprise Investment Scheme), SEIS (Seed Enterprise Investment Scheme), and VCT (Venture Capital Trust) – so what are they, how do they work and can they benefit your business? 

In this blog we answer all this plus more, to help you understand what advice and support is out there for small business owners. 

EIS vs SEIS vs VCT: What are the differences and how do they affect your taxes? 

If you’re considering investing in an early-stage business, you’ll no doubt have some questions and potential concerns surrounding the risk involved. To counter-act this, this UK government offers some powerful tax incentives to encourage people to support companies. The three main schemes available are the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and the Venture Capital Trust (VCT). 

Whilst all three schemes aim to promote growth in small businesses, each one is different in its approach, limitations and tax benefits. We’ll now break down further what they are, their differences and how they can affect your taxes.  

 What is EIS? 

The Enterprise Investment Scheme (EIS) was created to encourage investment into small, high-risk trading companies. It’s a popular scheme amongst investors who are looking to support businesses that are already established, but are still relatively early on in their growth journey. 

Key features of EIS include: 

• Invest up to a maximum of £1 million per tax year (or £2 million if at least £1 million is in knowledge-intensive companies) 

• Holding shares for at least 3 years to retain tax relief 

• The company must be unquoted or listed on AIM 

EIS Tax Benefits 

• 30% income tax relief on investments (up to £300,000 back) 

• No Capital Gains Tax (CGT) on profits if the shares are sold after 3 years 

• CGT deferral on other gains if they’re reinvested into EIS 

• Loss relief is available if the company fails – you’re able to offset the loss against income or capital gains 

• Inheritance tax exemption is available after 2 years 

What is SEIS? 

The Seed Enterprise Investment Scheme (SEIS) is geared towards those who are at the very early stage of their business journey. It’s more generous than EIS but comes with much tighter limitations.  

 Key features of SEIS include: 

• The ability to invest up to £200,000 per tax year 

• That the company must be under 2 years of age, and have gross assets of less than £350,000 

• It must be unquoted of AIM-listed 

SEIS Tax Benefits 

• 50% income tax relief (up to £100,000 back) 

• No CGT on SEIS share profits after 3 years 

• 50% CGT reinvestment relief on gains reinvested into SEIS 

• Less relief and inheritance tax exemptions similar to EIS 

What is VCT? 

Venture Capital Trusts (VCT) are investment companies that are listed on the stock market which spread your investment across multiple early-stage businesses.  

Key features of VCT include: 

• Investing up to £200,000 every tax year 

• Shares must be held for a maximum of 5 years in order to retain tax relief 

• The investment must be managed by professionals, and spread across multiple companies 

VCT Tax Benefits 

• 30% income tax relief on investments (up to a maximum of £60,000 back) 

• Tax-free dividends 

• No CGT when selling VCT shares 

It’s important to note that VCTs don’t offer CGT deferral or loss relief in the same way that EIS and SEIS does. 

What are the key differences at a glance? 

Feature	EIS	SEIS	VCT
Max Investment / Year	£1M (£2M for KICs)	£200,000	£200,000
Income Tax Relief	30%	50%	30%
CGT-Free Growth	Yes	Yes	Yes
CGT Deferral Relief	Yes	50% reinvestment relief	No
Loss Relief	Yes	Yes	No
Inheritance Tax Relief	Yes (after 2 years)	Yes (after 2 years)	No
Minimum Holding Period	3 years	3 years	5 years
Investment Style	Direct into companies	Direct into seed-stage	Via listed trust (spread)

How do the schemes affect your taxes? 

These three schemes offer one of the few legal ways in which you’re able to significantly reduce your tax bill in the UK. Here’s how: 

Lower your income tax bill: EIS, SEIS and VCTs allow you to deduct a percentage of your investment from your overall tax bill 

Reduced or eliminated Capital Gains Tax: EIS and SEIS allow you to defer or eliminate CGT. VCTs make your dividends and Capital Gains completely tax-free 

Protect your estate: SEIS and EIS shares may qualify for 100% inheritance tax relief after a period of two years 

Final thoughts on EIS, SEIS and VCT 

If supporting early-stage businesses is something you’re considering, you’ll no doubt want to do it in the most tax-efficient way, and EIS, SEIS and VCTs offer some compelling opportunities: 

• SEIS is perfect if you’re backing very new start-ups 

• EIS would suit you if you’re looking for a slightly more established (but still small) company 

• VCTs offer a diversified and professionally managed may to invest in startups that come with added tax perks 

It’s important to remember that any scheme comes with its own risk, and therefore it’s important to seek financial advice before investing. Always speak to your Vantage Accounting Client Director to discuss your future plans, and for an introduction to one of our trusted financial advisers.