Getting a KIC out of EIS relief
EIS and SEIS can give investors great tax bandits when investing in your business.
We’ve already written about the main benefits and rules surrounding them in this article.
However, it doesn’t stop there. If you’r a Knowledge Intensive Company (KIC) then there is a special status allow you to raise even more money under the EIS schemes. A KIC is a company that is carrying our research, development or innovation at the time they are issuing shares.
As a KIC, the additional benefits are;
You can raise up to £10m in EIS investment per year instead of the normal £5m
In the lifetime of the company you can extend the total from £12m to £20m
Investors can claim tax relief on EIS investments of up to £2m if at least £1m is invested in KICs.
As you may have read already, EIS applies to investment raised within the first 7 years of the new business activity (its first commercial sale or annual turnover exceeding £200k). With KICs it’s extended to 10 years.
A KIS can also have up to 499 full-time employees, compared to the standard EIS of 250
Applying for EIS as a KIC is done in much the same way as EIS. It’s good practice to apply for Advanced Assurance as normal – mentioned in our previous article. Advanced Assurance isn’t necessary strictly speaking – but it will avoid a lot of disappointment should you end up not qualifying when the time comes.
Whilst the shares are being issued, the company must be in the process of developing intellectual property will relate to the main business income over the next 10 years. The company must also have at least 20% or more of its employees carrying out the research for 3 years from the investment date and hold a role that requires a relevant Master’s or higher degree. This may affect your hiring plan.
In addition, you should either ensure that at least 10% of your overall overheads are related to innovation, research and development per year for the past 3 years or next 3 years, or 15% in one of the past 3 years or future 3 years. If you company is 3 years old, you must have done this in the 3 years before the investment. If you are a new company, you must carry this out in the 3 years following the investment. There is a schedule that you will need to complete to support the accounts to prove that this is the case.
For more detailed information from HMRC, please check out https://www.gov.uk/guidance/use-the-enterprise-investment-scheme-eis-to-raise-money-for-research-development-or-innovation