An EIS fund is not a company and not a limited partnership. It is a discretionary arrangement: investors subscribe to a pool that a manager then deploys into EIS-qualifying companies, with each investor holding a slice of every share beneficially, usually through a nominee. HMRC will approve such a fund in advance, provided the manager undertakes to run it within the conditions set for knowledge-intensive funds. Most EIS portfolio services never seek approval. Their investors still get relief.
The word approved does the damage here, because it sounds like an endorsement and is nothing of the kind. The Carry, notes from the UK cap table, keeps this page to the mechanics: what approval is, and what it commits each side of the fund to. No provider is named, deliberately.
Approval moves the date on the relief. The risk stays exactly where it was.
What is an HMRC approved EIS fund?
An approved EIS fund is one whose manager has secured advance approval from HMRC under the guidelines for the approval of knowledge-intensive funds, published in the Venture Capital Schemes Manual at VCM16055. Approval is a tax procedure. It creates no new relief and it says nothing about the quality of the manager.
The structure underneath is identical with or without it. Investors commit before the portfolio exists and the manager chooses the companies; each investor ends up owning a proportion of every share issue beneficially. The current regime reserves approval for funds focused on knowledge-intensive companies, broadly the research-heavy, intellectual-property-led end of EIS, a definition HMRC sets out at VCM16060.
Unapproved EIS portfolio services run on the same chassis, and they make up much of the market. Nothing about their investors' relief is second class. What approval changes is the timing of that relief, and the discipline the fund must accept to earn the label.
What are the conditions for approval?
Five headline conditions, all drawn from HMRC's guidelines for the approval of knowledge-intensive funds. A fund seeking approval undertakes that:
- at least 50% of its capital is invested within 12 months of the date the fund closes;
- at least 90% is invested within 24 months of that date;
- at least 80% of the capital goes into knowledge-intensive companies;
- the money is spread across a minimum of four companies;
- no more than 50% of the fund sits in any one company.
The table on this page gathers them in one view. Two points sit outside the list and matter as much. The clock runs from the fund's close rather than from its first completed deal, which makes the size of the raise a deployment decision. And the conditions stack on top of ordinary EIS qualification: each underlying company must still qualify in its own right, or relief on that holding fails whatever the fund promised HMRC.
What does approval change for investors?
Timing. An investor in an approved knowledge-intensive fund can treat income tax relief by reference to the tax year in which the fund closes, the treatment HMRC describes in Income Tax relief and the EIS approved knowledge-intensive fund on GOV.UK. In an unapproved service, relief follows each underlying share issue as it happens; a slowly deploying portfolio can scatter claims across several tax years.
The relief itself is untouched. It is the standard EIS offer set out on GOV.UK: 30% income tax relief on up to £1m a year, or £2m where at least £1m goes into knowledge-intensive companies. Approval neither lifts the rate nor widens the cap.
Nor does it touch the risk. Relief survives only if the underlying companies keep their qualifying status for the required holding period, and the capital survives only if the companies do. An approved fund can hit every deadline and still lose its investors' money.
What does the manager take on?
A set of dated undertakings to HMRC, and a mandate narrower than a general EIS service. The deployment clock is the hardest of them: the 50% and 90% deadlines run from the moment the fund closes, in a market where sourcing and completing qualifying knowledge-intensive deals is slow work. A manager who raises more than the pipeline can absorb has designed the breach in advance.
The portfolio rules do the rest of the shaping. The minimum company count and the single-company cap force genuine spread, and the knowledge-intensive weighting fixes the strategy whatever else crosses the desk. These commitments are given before the first cheque is written, and the timing treatment investors expect rests on the fund doing what it undertook.
None of this is FCA authorisation. Managing other people's money is a regulated activity in its own right, a question this site covers in from angel to fund manager: the FCA reality check. A manager weighing the structure needs regulatory and tax counsel from the outset, not once the money is in.
Where does this sit next to running a fund or a syndicate?
It is a third shape, tighter than either neighbour. A micro VC fund, the build covered in how to start a micro VC fund in the UK, pools committed capital in a limited partnership with an LP base and a fund life measured in years. A syndicate, covered in how to start an angel syndicate in the UK, assembles investors deal by deal and pools nothing beyond each transaction. An approved EIS fund borrows from both. Money is pooled up front as in a fund, yet each investor owns the companies directly as in a syndicate, under a conditions regime neither of the others carries.
Which shape fits a given manager turns on facts this page cannot see, starting with the pipeline and the capital behind it, and no verdict is offered. This is general information, not financial or tax advice, and it recommends no fund and no provider. Reliefs depend on individual circumstances and the rules change: the current position lives on GOV.UK, and an FCA-regulated adviser is the right first call before committing capital to any EIS arrangement. Running one is a larger undertaking again: the approval application and the fund's regulatory position both need specialist regulatory and tax counsel before anything is signed.
Frequently asked questions
What is an HMRC approved EIS fund?
An EIS fund whose manager has obtained advance approval from HMRC under the guidelines for knowledge-intensive funds. The fund is a discretionary arrangement rather than a company: investors subscribe to a pool, the manager invests it in EIS-qualifying companies, and each investor holds a share of every investment beneficially. Approval commits the fund to conditions on deployment pace and portfolio make-up.
Do investors lose EIS relief if a fund is not approved?
No. Relief comes from the underlying shares, so investors in unapproved EIS portfolio services claim it against each share issue as it happens. Approval changes the timing: investors in an approved knowledge-intensive fund can treat relief by reference to the tax year in which the fund closes. In both cases relief still depends on each company keeping its EIS qualifying status.
What conditions must an approved knowledge-intensive fund meet?
Under HMRC's guidelines, at least 50% of the fund's capital must be invested within 12 months of the fund closing and at least 90% within 24 months; at least 80% of capital must go into knowledge-intensive companies; the fund must invest in a minimum of four companies; and no more than 50% of the fund may sit in any one company.
Does HMRC approval mean a fund is endorsed or FCA regulated?
No. Approval is a tax procedure and says nothing about the quality of the manager or the prospects of the portfolio. It is entirely separate from FCA authorisation, which governs whether anyone may manage investors' money in the first place. A fund can be FCA-regulated and unapproved, or approved and still subject to every regulatory requirement.
Is this page advice on setting up or investing in an approved EIS fund?
No. It is general information about how the scheme works, not financial or tax advice, and it names and recommends no provider. Reliefs depend on individual circumstances and the rules change: check the current position on GOV.UK and take advice from an FCA-regulated adviser before committing capital. Anyone planning to run such a fund also needs specialist regulatory and tax counsel.