EIS Money: Beware how you spend it!

18th June 2018

Tech companies that are financed through EIS equity cash will be aware that this ‘tax wrapper’ can be super-generous, but that many criteria have to be met to ensure eligibility. One of these long standing criteria has been that the company must use the proceeds (up to £5m pa) raised:

  • In either a qualifying trade or R&D in preparation of commencing such a trade,
  • To grow or develop the business,
  • Within 2 years of receiving the investment.

What such companies may not yet be aware of, however, is that these rules were slightly amended in the 2017 Budget (which became the Finance Act 2018). A new risk-to-capital condition was introduced, to prevent investment in companies whose activities are mostly geared towards the preservation of the capital invested rather than the long-term growth and development of the company. This therefore encourages:

  • Growth and development of the trade,
  • Exposing the capital to risk of loss,
  • Increasing headcount,

But perhaps precludes using the cash to purchase commercial premises

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