When tech companies or start ups want to raise money they commonly turn to either the EIS (Enterprise Investment Scheme) and SEIS (Seed Enterprise Investment Scheme) regimes, which offer significant tax breaks to investors and help to stimulate investment activity in smaller companies.
The most generous relief is offered by SEIS, which is applicable only to very small and very new companies. The still very generous relief offered by EIS is applicable to larger companies and can be used once SEIS availability has been exhausted.
But like a parent dreading an empty nest as their children grow up, so directors of growing companies can find they’ve outgrown ‘normal’ EIS eligibility whilst they are still in a cycle of raising investment. When that happens, the availability of EIS relief can be prolonged where the company is able to demonstrate Knowledge Intensive Company (“KIC”) status.
Extended Availability
The key advantages of Knowledge Intensive Company (KIC) status over ‘normal’ EIS rules include;
| EIS | KIC | |
|---|---|---|
| Annual limit for individual investor | £1m | £2m |
| Annual limit for the fundraising company | £5m | £10m |
| Lifetime limit for the fundraising company | £12m | £20m |
| Maximum age of the fundraising company | 7 years from first sale | 10 years from turnover reaching £200k |
| Limit on number of employees | 250 | 500 |
Requirements
Knowledge Intensive Company (KIC) status requires two tests to be passed;
- One which focusses on the proportion of operating costs which are applied towards R&D or innovation spend, and;
- The other focussed either on:
- The development of IP which it is reasonable to assume will be exploited as the larger part of the company’s business, or
- The proportion of employees who have a sufficiently high level and relevant qualification and are engaged in work of an R&D or innovation nature.
As with other aspects of EIS, some criteria are measured at the time the shares are issued whilst others must remain at a given level during the 3-year period following issue of the shares.
Need Support?
We have assisted clients in getting Knowledge Intensive Company (KIC) status agreed with HMRC by collating the necessary detail, assessing the company’s eligibility and then presenting things to HMRC in an appropriate manner. Assurance as to KIC status ahead of an intended fund raise can re-assure investors before they commit their money, helping smooth the fundraising process.
To discuss your tech or start up business, please reach out to our Tech & Media team on 0845 606 9632 or email team@thesmartaccountants.co.uk.