EIS has a standard set of limits on how much a company can raise and how old it can be. But the scheme treats one group of companies more generously: those that qualify as knowledge-intensive.
For a research-led business, knowing whether it qualifies can make a real difference to how much it can raise under the scheme.
Why the category exists
Research and development-heavy businesses often take longer to reach revenue and need more capital to get there. The knowledge-intensive rules recognise that by giving these companies more room within EIS, including higher investment limits and more time from first commercial sale in which they can raise.
The exact limits are set by HMRC and are updated from time to time, so check the current figures before relying on them.
What makes a company knowledge-intensive
Broadly, a company has to meet two kinds of test.
An operating costs test. A substantial share of the company’s spending must go on research, development or innovation.
An innovation or skilled employee test. Either the company is creating intellectual property that will form a large part of its business, or a significant proportion of its workforce holds relevant higher qualifications and works in research.
The precise thresholds and definitions matter, and they are applied to the company’s actual figures.
How to check
- Pull the numbers. Break down operating costs to show how much genuinely goes on R&D and innovation.
- Map the team. Record qualifications and roles for staff engaged in research.
- Document the IP. Show what intellectual property the company is creating and how central it is to the business.
- Take specialist advice, and consider seeking advance assurance so investors know where they stand.
What it means for investors
Investors in a knowledge-intensive company get the same types of EIS relief. The difference is on the company’s side: it can raise more within the scheme. That can mean a larger round, or a company that would otherwise have outgrown EIS still being able to use it.
If your business is research-heavy, check the status early. It may open a door you did not know was there.
Mark Johnson is a Director of BDM Wealth Management, which introduces capital raising opportunities across bonds, loan notes, IPOs and SEIS/EIS. To discuss a raise, get in touch.
BDM Wealth Management is an introduction business and is not regulated. This article is general information, not financial, tax or legal advice, and does not constitute an offer or invitation to invest. Capital is at risk and you may get back less than you invest. For high-net-worth and sophisticated investors only. Take independent professional advice before making any investment decision.
