EIS & the 7-year rule
In 2015 HMRC introduced a number of changes to the EIS (Enterprise Investment Scheme) rules. For more information about those changes please visit Gov.uk website. The major change introduced was ‘permitted maximum age requirement’. It is also known as a 7-year rule.
This new rule states that investment must be received within the company’s initial investing period, so within 7 years of the company’s first commercial sale. If you have any subsidiaries (including former subsidiaries) or businesses you’ve acquired, the date of your first commercial sale is the earliest of the group.
The Knowledge-Intensive companies, however, are applicable for a 10-year period.
There are two exceptions to the 7 years rule:
1. If the investment is needed to enter into either a new product or geographical market.
Please note that you’ll have to show that you’re seeking at least 50% of your company’s average annual turnover for the last 5 years. This exception will only apply where companies undertake a ‘significantly new business activity’, that is fundamentally different and requires disproportionately more investment compared to the ‘normal’ activities. It could be a new product, sector, customers and no significant research and development spending.
In addition to that, HMRC also notes that potential investors cannot entrust a company’s current records to determine if their investment is likely to be successful, there must be a significant amount of risk.
2. If you have previously received EIS funding within the newly defined 7-year initial investing period, the company can continue to raise under EIS up to the £12 million limit.
If you would like to learn more about the EIS scheme, find out if your business is eligible then don’t hesitate to get in touch with us.