How Older Companies Can Qualify for EIS

We've recently received inquiries from companies older than seven years that are interested in raising EIS (Enterprise Investment Scheme) funding. While there are specific rules for such cases, this guide explains the key requirements.

General EIS Age Restrictions

Typically, EIS investments are only available for companies that are less than seven years old, measured from the date of their first commercial sale. However, companies classified as "knowledge-intensive" can qualify for EIS investments within their first ten years. These companies generally allocate 10–15% of their annual costs to R&D and employ a significant proportion of highly skilled staff.?

Exceptions to the Age Rule

There are three primary exceptions to the seven (or ten) year age limit:

Condition A – Follow-on Funding

Companies may raise funds beyond the seven-year limit if the new investment is follow-on funding for the same business activity. Key points include:

• The funding must pertain to the same business activity as the initial investment. If the company has pivoted to a new activity, this condition won't apply. Examples are available from HMRC here.
• Follow-on funding must have been anticipated in the company's business plan at the time of the initial investment, even if the exact amount or timing wasn’t specified.
• If too much of the original investment has been spent, the follow-on funding could be affected by the financial health requirement (explained below).

Condition B – New Product or Market

Companies can qualify for EIS investment if the funds are used to enter a new product or geographical market. The investment must equal at least 50% of the company’s average turnover over the past five years. Key points include:

• This rule aligns with EU State Aid principles, which aim to prevent state support for failing businesses.
• The condition supports businesses that have significantly pivoted, where past trading history isn't a reliable indicator for investors.
• Turnover figures are based on the company’s reported accounts.
• It’s important to note that developing a new product for existing customers does not count as entering a new market. HMRC takes a strict stance on this, as illustrated here.

Condition C – Follow-on from Condition B

Companies that successfully raise funds under Condition B may subsequently raise follow-on funding for the same activity. The rules for this follow-on funding are identical to those under Condition A.

The Financial Health Requirement

For companies seeking investment under Condition A outside the seven- (or ten-) year limit, they must meet the financial health requirement. Specifically:

• A company fails this requirement if over 50% of its subscribed share capital has been eroded by accumulated losses.
• This is often a challenge for tech companies, which tend to allocate significant funding to R&D and growth activities.

For more details on the financial health requirement, visit our support page here.

Conclusion

While EIS funding is primarily designed for younger companies, there are clear pathways for older businesses to qualify under specific conditions. Whether raising follow-on funds, entering new markets, or leveraging knowledge-intensive status, careful planning is essential.

Companies must also ensure compliance with the financial health requirement to secure funding successfully. For tailored guidance, consult our expert resources or contact us directly.

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