If you're running a startup or small business in the UK, chances are you've hit that familiar roadblock: you need funding to grow, but convincing investors to take a chance on your business can feel nearly impossible. That's where the UK government steps in with a set of powerful tools known as Venture Capital Schemes.
Think of these schemes as a win-win. They make it easier for startups to raise money, and offer tax breaks that help investors feel a lot more comfortable taking a risk on early-stage companies. Here's how they work, plus how they can work for you.
What are Venture Capital Schemes?
Venture capital schemes are government-backed programmes designed to encourage investment in smaller UK businesses. They offer investors generous tax reliefs in return for putting their money into companies that need funding to innovate and grow.
There are three main schemes:
1. Enterprise Investment Scheme (EIS)
2. Seed Enterprise Investment Scheme (SEIS)
3. Venture Capital Trusts (VCTs)
Each one targets a different stage of business growth, but they all share a common goal: helping entrepreneurs access funding by rewarding the people willing to invest in them.
Why investors love these schemes
Let’s face it - investing in small companies is risky. But what if the government helped soften the blow? That’s what these schemes do. For example, under SEIS, an investor can receive up to 50% of their investment back as a tax reduction. If the business goes under, further loss relief is available. And if things go well? They could pay no Capital Gains Tax on their profits when they sell. It’s a smart incentive that makes early-stage investing more attractive.
Which scheme is right for your business?
Here’s a quick breakdown of each scheme and who it’s for:
SEIS – For new ideas just getting started
If your business is very young - less than two years old - and hasn’t raised more than £250,000 in total, SEIS is likely the best fit. You can raise up to £250,000 through this scheme.
Investors’ benefits include:
• 50% Income Tax relief (on investments up to £200,000/year)
• No Capital Gains Tax on SEIS shares
• Loss relief if the business fails
To qualify, your company must have fewer than 25 employees and less than £350,000 in assets.
EIS – For growing businesses
EIS is ideal for more established startups looking to scale. You can raise up to £12 million through this route.
Key eligibility:
• Less than seven years since first commercial sale (for most sectors)
• Fewer than 250 employees
• Gross assets under £15 million
Investors' benefit inludes:
• 30% Income Tax relief
• Capital Gains Tax deferral
• Loss relief and CGT exemption after three years
VCT – For investors who want to spread risk
This scheme doesn’t apply to individual businesses directly, but is worth knowing. VCTs are funds listed on the Stock Exchange that pool investor money and invest it across multiple small companies.
Investors get:
• 30% Income Tax relief (up to £200,000/year)
• Tax-free dividends
• No Capital Gains Tax
For businesses, this means access to funding through VCTs if you meet similar requirements as EIS.
What kinds of businesses qualify?
Most trading businesses qualify, but there are exceptions. Sectors like property development, banking, energy generation, and legal services are generally excluded.
Additionally, your company must be based in the UK, be engaged in a qualifying trade, and not be listed on a stock exchange. Importantly, your business can’t be controlled by another company.
Advance Assurance: A signal to investors
Before you go hunting for investors, you might want to apply for what's called advance assurance from HMRC. This isn't a requirement, but it’s a strong signal to potential investors that your business is likely to qualify for tax relief.
You’ll need to send HMRC information such as your business plan and details of how you'll use the funds. In return, you’ll get a letter that reassures investors their tax benefits are safe.
A note on SITR
There used to be a fourth option, Social Investment Tax Relief (SITR), aimed at charities and social enterprises. However, this scheme closed to new investments in April 2023.
Take the leap
Raising money can be one of the toughest parts of running a startup. But the UK’s venture capital schemes are designed to make it easier, for both businesses and investors. Whether you’re just launching and need a small boost through SEIS, or you’re scaling up and need more substantial backing via EIS or a VCT, these schemes can make a real difference.
If you’re thinking about raising funds, now’s the time to explore these options. And if you’re an investor looking to support the next big thing - while getting rewarded for your risk - it might just be the smartest move you make.
