Enterprise Investment Scheme_The benefits and qualifying requirements_2022

Key criteria Qualifying

Key criteria Qualifying requirement Company • Can raise up to £5 million per annum or, for shares issued on or after April 2018, £10 million per annum if the company is classified as a Knowledge-Intensive Company (“KIC”) under the EIS scheme (capped at a lifetime limit of £12 million generally or £20 million for KICs). • Must be an unquoted company (AIM and PLUS quoted companies may qualify but not PLUS-listed companies). • Shares must be issued within seven years of the company’s relevant first commercial sale. For KICs, the period is 10 years from the relevant first commercial sale or from the date when annual turnover exceeds £200,000. • Must be a genuine entrepreneurial company intending to grow and develop with a significant risk of loss of capital. • Must have a permanent establishment in the UK. As long as the issuing company has a permanent establishment in the UK, the funding can be used for a qualifying trade that is not in the UK. • Must have gross assets of not more than £15 million pre-investment and £16 million immediately post-investment. • Must have 249 or fewer full time employees (or part time equivalent) pre-investment (499 or fewer for KICs). • Must exist wholly for the purpose of carrying on a qualifying trade: activities cannot be substantially made up of ‘excluded’ activities (see below). HMRC apply a 20% limit to the amount of activity of the issuing company that may be non-qualifying or an exempt activity, which applies for three years from the date of share issue. • Funds must be employed in the qualifying business activity within two years. For shares issued on or after 18 November 2015, acquiring an existing company or trade will not satisfy this requirement. • The issuing company must not be a 51% or more subsidiary of another company or under the control of another company for the period of three years from the date of share issue. The Company may have its own subsidiaries provided it owns more than 50% in each of them (this rises to 90% for property management subsidiaries). If funds raised are to be used by the subsidiary, the subsidiary must be at least 90% owned by the issuing company throughout the three-year period from the share issue. Shares • Must be new and fully paid up in cash at the time of issue. They must be non-redeemable ordinary shares without preferential rights (other than certain dividend rights) or anti-dilution protection. • Must be held by the investor for at least three years, with no pre-arranged exit for the investor. • Must be issued to raise money for a qualifying business activity, for commercial reasons and not for the purposes of tax avoidance. • Shares with a right to conversion into shares of another class in the company can qualify for relief. Investor • The investor (and any “associates”) cannot hold (or be entitled to hold) more than 30% of the issued share capital or voting rights or otherwise control the company or any subsidiary. • Must not be “connected” with the company during a period of two years before the investment and three years afterwards i.e.: the investor and their associates must not: – subscribe for shares under reciprocal arrangements. – be an employee of the issuing company, any subsidiary or any partner of them. – be a paid director of the issuing company, any subsidiary or any partner of them before the investment (subject to certain exceptions). • Can invest up to £1 million in EIS qualifying investments per annum. From 6 April 2018, the limit is £2 million, provided anything above £1 million is invested in KICs. • For shares issued on or after 18 November 2015, investors that already hold shares in the company (or subsidiary) will only qualify if those shares were risk finance shares (i.e. shares for which an EIS/SEIS compliance certificate was issued or founder shares). Excluded activities • There are a number of excluded activities: – all energy generating activities and creating fuel. – dealing in land, commodities, futures, shares, securities or other financial instruments. – dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution. – banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities. – leasing. – receiving royalties or licence fees (this exclusion is waived in certain circumstances). – providing legal or accountancy services. – property development. – farming or market gardening; holding/managing or occupying woodland, forestry activities or timber production. – shipbuilding; producing coal or steel. – operating or managing hotels or nursing/residential homes. – providing services or facilities to a connected business which carries on an excluded activity. www.burges-salmon.com Burges Salmon LLP is a limited liability partnership registered in England and Wales (LLP number OC307212), and is authorised and regulated by the Solicitors Regulation Authority. It is also regulated by the Law Society of Scotland. Its registered office is at One Glass Wharf, Bristol BS2 0ZX. A list of the members may be inspected at its registered office. Further information about Burges Salmon entities, including details of their regulators, Is set out on the Burges Salmon website at www.burges-salmon.com. © Burges Salmon LLP 2021. All rights reserved. Extracts may be reproduced with our prior consent, provided that the source is acknowledged. Disclaimer: This briefing gives general information only and is not intended to be an exhaustive statement of the law. Although we have taken care over the information, you should not rely on it as legal advice. We do not accept any liability to anyone who does rely on its content. Your details are processed and kept securely in accordance with the Data Protection Act 1998. 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