“We will give the team some shares under EIS.” It is one of the most common things founders say to us, and it does not work.
That is worth separating clearly from the genuinely good news, which is that the Enterprise Investment Scheme became considerably more useful this April — and a number of companies that had grown out of it now qualify again.
What changed on 6 April 2026?
Following the Autumn Budget 2025, the Finance Act 2026 substantially widened the range of companies able to raise EIS finance:
- gross assets of up to £30 million immediately before the share issue, and £35 million immediately afterwards, up from £15 million and £16 million;
- an annual funding cap of £10 million, up from £5 million, or £20 million for knowledge-intensive companies, up from £10 million;
- lifetime limits of £24 million, up from £12 million, or £40 million for knowledge-intensive companies, up from £20 million.
One condition did not change: the headcount. EIS still requires fewer than 250 full-time equivalent employees at the time of the share issue, or 500 for a knowledge-intensive company — and the knowledge-intensive figure was already 500 before April 2026.
This is worth stating plainly, because the employee limit for EMI did double from 250 to 500 on exactly the same date, and the two are being widely conflated. Several published summaries, including from firms that should know better, now state that the EIS limit is 500. HMRC’s guidance at VCM13120 confirms it is not. If you have been told your company now qualifies for EIS on headcount, check which scheme that advice was about.
Income tax relief for EIS investors stays at 30%. Relief for investors in venture capital trusts fell from 30% to 20% on the same date, which widens the advantage of direct EIS investment for individuals focused on income tax efficiency.
One carve-out to be aware of: the increased limits do not apply to “specified companies” — broadly, certain Northern Ireland companies carrying on specified activities — which continue under the previous caps. Where a group contains a specified company as a subsidiary, the parent can access the higher limits, but funds employed in that subsidiary are restricted to the old thresholds.
The practical point: if your company was outside the thresholds before April 2026 on gross assets, reassess. Technology, life sciences and engineering businesses that had outgrown the old £15 million limit are back in scope, and companies mid-raise have real headroom for the first time in years. If you were outside on headcount, nothing has moved.
Can I use EIS to give shares to my employees?
No. Two conditions dispose of the idea before it starts.
The shares must be newly issued and paid for in cash. EIS relief attaches to new, fully paid ordinary shares subscribed for in cash, carrying no preferential rights on a winding up or redemption. A transfer of existing shares from a founder or another shareholder can never attract EIS relief, however the paperwork is drafted.
Employees are connected persons. An employee of the company or a subsidiary is connected with it for EIS purposes and cannot claim income tax relief on shares in their employer. Unpaid directors sit outside the restriction, and there is a limited let-out for investor-directors who become remunerated after subscribing. Both are planning routes for business angels joining a board. Neither helps your operations manager.
How is EIS different from employment related securities?
They are opposite in direction, and confusing them is expensive — a single share issue can fail the EIS conditions and trigger an employment tax charge at the same time.
EIS is a relief for investors under Part 5 of the Income Tax Act 2007. It gives something away: 30% income tax relief, capital gains tax exemption after three years, deferral relief, and business property relief after two years. It requires a subscription for new shares in cash, by someone unconnected with the company.
Employment related securities are a charging regime under Part 7 ITEPA 2003. It takes something back: income tax on the value received, plus PAYE and National Insurance where the shares are readily convertible assets. It applies to issues and transfers alike, and it catches spouses and other connected persons.
The working rule is simple. If the recipient works in the business, start from the assumption that Part 7 applies and EIS does not — then look for reasons that assumption is wrong, rather than the other way round.
Could an employee share arrangement damage my existing EIS investors?
Yes, and this is the risk founders most often overlook.
EIS relief is conditional for three years from each share issue, and a breach can lead to clawback for the investor. Creating new share classes, issuing at an undervalue, granting preferential rights, or restructuring the cap table to accommodate an employee arrangement can all put that relief at risk.
Explaining to your funders after the event that their relief has been withdrawn is not a conversation worth having. Check before the board resolution, not after.
So what should I use instead?
Where the objective is retention and alignment on exit, EMI options are almost always the stronger answer: no charge on grant, no income tax on exercise where granted at market value, and growth taxed as capital.
They also became considerably more accessible on 6 April 2026. For options granted on or after that date, the Finance Act 2026 doubled the EMI employee cap from 250 to 500 full-time equivalents, raised the gross assets test from £30 million to £120 million, doubled the maximum value of shares under option from £3 million to £6 million, and extended the exercise window from 10 years to 15 — the last of which can be applied to existing options.
The gross assets figure is the striking one. A company can be four times too large to qualify on the EIS gross assets test and still be comfortably inside EMI. That is the clearest illustration of the point this article is making: these are separate regimes with separate tests, and outgrowing one tells you nothing about the other.
Growth shares remain a workable alternative where EMI is not available, for example because of size, sector or independence conditions.
Both need an up-front valuation and proper documentation, and both bring reporting obligations of their own — including an annual return by 6 July.
Get the structure right before the certificates are issued. Undoing it afterwards is considerably harder than doing it once.
Frequently asked questions
What are the EIS limits for 2026/27?
From 6 April 2026, a company must have gross assets of no more than £30 million immediately before the share issue and £35 million immediately after. It can raise up to £10 million a year and £24 million over its lifetime — £20 million and £40 million for knowledge-intensive companies. The employee condition is unchanged: fewer than 250 full-time equivalent employees, or 500 for a knowledge-intensive company.
Did the EIS employee limit increase to 500?
No, and this is a common and consequential misunderstanding. EIS still requires fewer than 250 full-time equivalent employees at the time of the share issue, with 500 for knowledge-intensive companies — and the knowledge-intensive figure was already 500 before April 2026. The increase from 250 to 500 applied to Enterprise Management Incentive options, not to EIS. HMRC’s guidance at VCM13120 sets out the EIS position and carries no Finance Act 2026 amendment.
Has EIS income tax relief changed?
No. It remains at 30% on investments of up to £1 million per tax year, or £2 million where the excess is in knowledge-intensive companies. Venture capital trust relief, by contrast, fell from 30% to 20% on 6 April 2026.
Can a director claim EIS relief?
An unpaid director can, provided the other conditions are met. A remunerated director generally cannot, unless they fall within the limited business angel exception — broadly, where they subscribed before becoming entitled to remuneration. It is a narrow route and needs advice before the investment is made.
Can employees ever hold EIS shares?
They can hold shares, but they cannot claim EIS relief on shares in their employer while the connection exists. The shares themselves will instead usually fall within the employment related securities rules, with an income tax charge and an annual return by 6 July.
My company was too big for EIS before April 2026. Should I look again?
It depends which test you failed. The doubling of the gross assets threshold from £15 million to £30 million brought a significant number of scaling businesses back into scope, so if you were ruled out on gross assets, that advice is now out of date. If you were ruled out on headcount, nothing has changed — the 250 full-time equivalent limit still applies. Either way, advance assurance is worth obtaining before approaching investors.