A Step-by-Step Guide to Enterprise Investment Scheme (EIS) Tax Relief After Company Collapse

Investing in early-stage UK companies is a bold move. The government’s Enterprise Investment Scheme (EIS) helps reduce the risks by offering generous tax reliefs. These include upfront income tax relief and, crucially, loss relief if the company fails.

If you’ve invested in an EIS-qualifying business that has since gone under, there’s good news. You may still be able to recover part of your losses through tax relief. But there are rules, timelines, and steps you need to follow.

This article explains, in simple terms, what you can and can’t do if your EIS-backed company fails. It also highlights how specialist EIS services can help you review your position, calculate eligible losses, and submit claims correctly.

What Is the Enterprise Investment Scheme (EIS)?

The EIS is designed to encourage investment in small UK trading companies. These businesses are often high-risk but offer high growth potential. To reward the risk, the government provides a suite of tax reliefs to qualifying investors.

Here’s a quick overview of the main benefits:

Income Tax Relief:

• Get 30% tax relief on investments up to £1 million (£2 million if at least £1 million is invested in knowledge-intensive companies).

Capital Gains Tax Exemption:

• No capital gains tax on shares if you hold them for at least 3 years, claim income tax relief, and meet other conditions.

Loss Relief:

• If your investment loses money, you can offset that loss against your income or capital gains from the current or previous year.

CGT Deferral Relief:

• You can delay paying capital gains tax on other assets by reinvesting the gain into EIS shares (within 1 year before or 3 years after selling the asset).

EIS3 Certificate Requirement:

• To claim these reliefs, you must hold a valid EIS3 certificate issued by the company, and the company must remain EIS-qualifying for at least three years.

When Can You Claim EIS Loss Relief?

Loss relief is available when your investment becomes worthless or is sold at a loss. This applies whether the business is liquidated or the shares are declared of negligible value.

You must have invested in new ordinary shares and subscribed directly (not via the secondary market). You also must still hold the shares at the time of the loss or at the point of claiming negligible value.

The claim allows you to offset the net loss against:

• Your income in the current or previous tax year
• Or your capital gains in the current year

Let’s unpack how this works.

Calculating Your Net Loss

The loss is not simply the amount you invested. You must subtract any tax relief already claimed.

Here’s a basic formula:

Net Loss = Total Investment – Income Tax Relief – Amount Recovered

Example Calculation

Now assume you’re a higher-rate taxpayer (40%). You can claim 40% of the £7,000 against your income, saving £2,800.

Total tax relief = £3,000 (initial) + £2,800 (loss relief)
Effective cost of your £10,000 investment = £4,200

Where Can You Use the Loss?

Option 1: Offset Against Income Tax

This is often the most beneficial option for high earners. You can apply the net loss against your total income in the current or previous tax year. This reduces your taxable income and lowers your tax bill.

Option 2: Offset Against Capital Gains

If you’ve made gains on other investments (property, shares, etc.), you can offset the loss against those gains. This reduces the CGT you owe in that year.

You cannot split the loss between income and capital gains in the same claim, but you may choose the most tax-efficient route. Where investment losses form part of a wider financial position, careful planning supported by professional tax and accounting services can help ensure claims are structured correctly and aligned with your overall tax strategy.

Negligible Value Claims

What if the company has not been dissolved but is clearly worthless?

In that case, you can make a negligible value claim. This tells HMRC the shares are now worth nothing. If accepted, it triggers a disposal event for tax purposes. You can then use that date to claim your loss.

Key Rules for Negligible Value

• You must still own the shares
• The shares must have become worthless during your ownership
• You can backdate the loss by up to 2 tax years if conditions are met

If the company has already been struck off, and you did not make a claim before that, you may lose the ability to claim negligible value.

Filing Your Claim: Documents and Process

To claim EIS loss relief, you must file through self-assessment.

You’ll Need:

• A valid EIS3 certificate
• Proof of share purchase (e.g., share certificate, bank transfer)
• Evidence of loss (e.g. liquidation documents or negligible value claim)
• The SA108 Capital Gains Summary form

Where to Include the Claim:

• Use Box 41 of the SA108 form for capital losses
• Include a note specifying the EIS investment and how you calculated the loss
• For income tax relief claims, include under “other income losses”

Many investors choose to work with specialist EIS services in the UK to ensure the claim is accurate and submitted within HMRC’s strict requirements.

Time Limits for Claims

EIS claims are subject to strict deadlines. Missing them may result in HMRC refusing your claim.

Example:
If shares became worthless in the 2022–23 tax year (ending 5 April 2023), you must claim loss relief by 5 April 2027.

Common Mistakes to Avoid

• Claiming without an EIS3 certificate: No certificate, no relief
• Missing the deadlines: HMRC does not allow late claims
• Failing to subtract income tax relief from the loss: Only the net loss is eligible
• Trying to claim after the company is dissolved: It is usually better to act before the company is formally closed
• Confusing SEIS and EIS: Each scheme has different rules and claim processes

Limits on Annual EIS Investment

You can invest up to £1 million per tax year and claim income tax relief. This limit rises to £2 million if any amount above £1 million is invested in knowledge-intensive companies.

These limits affect your eligibility to claim relief but do not restrict your loss relief once the investment has qualified.

What You Can and Can’t Do

What You Can Do

• Offset EIS losses against income or capital gains
• Use a negligible value claim to trigger a loss even without disposal
• Backdate claims within legal limits
• Carry loss relief across tax years (in some cases)

What You Can’t Do

• Claim without an EIS3 certificate
• Claim on non-qualifying shares (e.g. preference shares or second-hand shares)
• Use the full investment amount as a loss (you must deduct the 30% relief)
• Claim relief after the 4-year window
• Backdate a claim without proving share value fell in that period

Final Thoughts

Losing money on a failed company is never easy. But with EIS loss relief, the government softens the blow. You may be able to reclaim a significant portion of your loss—if you understand the rules and act within the deadlines.

Keep your paperwork in order. Calculate the net loss carefully. And choose the relief route that suits your tax position. If you're unsure, speak to a professional or reach out to HMRC directly.

For investors seeking structured, compliant support, Apex Accountants offers dedicated Enterprise Investment Scheme services in the UK, helping clients prepare accurate claims and maximise available reliefs. With the right approach, even a failed EIS investment can deliver meaningful tax value.