02 Mar 2018 1:52 PM

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are part of the Government’s strategy designed to encourage investment in smaller, high risk trading companies by offering generous tax reliefs to investors. The schemes provide qualifying businesses with access to an alternative source of funding. Businesses need to fulfil strict criteria to qualify for EIS or SEIS.

HMRC have recently introduced two major changes to EIS/SEIS Advance Assurance Applications:


1. To ensure that their resources are used efficiently, HMRC have announced that they will not provide an advance assurance for what they describe as ‘speculative applications’. From 2 January 2018, they have stated that they will only provide an opinion where an application names the individuals, fund managers or other promoters who are expected to make the investment. 

It is hoped however that applications will still be considered where companies can identify generic investors for example crowdfunding platforms, business angels, EIS funds, etc.


2. They will not provide advance assurances from 4 December 2017 for investments that, taking into account all the facts available to them, appear likely to fail the ‘risk-to-capital’ condition.

The ‘risk-to-capital’ condition, is a gateway test to be introduced for SEIS and EIS investments. It was included in the draft Finance Bill 2017-18 which was published on 1 December 2017 and will apply to investments made on or after Royal Assent to the Finance Bill.

The ‘risk-to-capital’ condition is a principles-based test where HMRC will take a view as to whether an investment has been structured to provide a low-risk return for investors. HMRC is able to deny relief if they find an investment is designed to be low-risk.

There are two parts to the condition and both parts must be met; the first relates to the intention for the company to grow and develop, and the second to the risk to the investor of loss of capital.


‘Knowledge intensive’ companies

On a more positive note, there will be an increase in the amount of EIS relief available in respect of investments in ‘knowledge intensive companies’. EIS companies which are carrying out significant levels of Research and Development can qualify for higher amounts of EIS funding than other companies. The annual limits are to be doubled for investments on or after 6 April 2018, subject to State Aid rules:

  • The annual maximum amount of State aid funding that ‘knowledge intensive’ companies can receive will be increased from £5 million to £10 million
  • Individuals can invest £1 million in EIS companies in any tax year. For investment in ‘knowledge intensive’ companies, this will be increased to £2 million, provided that any amount over £1 million is invested in ‘knowledge intensive’ companies


If you are a company looking to raise funds through EIS or SEIS, we can advise you on the conditions that need to be satisfied and can deal with HMRC on your behalf. Please contact me if you would like advice on, or assistance with, EIS or SEIS.