On 9th December 2022 HMRC updated its guidance in respect of the financial health requirement.
While there has been no change to the legislation since 2011, the new updated guidance from HMRC provides clarification that ‘knowledge intensive’ companies which are less than 10 years should be able to qualify for EIS and VCT investment. (‘Knowledge intensive’ companies are those which are carrying out significant levels of research and development activities.)
HMRC’s interpretation of the financial health requirement requires consideration of whether a company which has been trading for more than seven years and has lost more than half of its subscribed share capital. This requirement will now be applicable for companies outside their ‘initial investing period’. For ‘knowledge intensive companies’ the ‘initial investing’ period is ten years, and for other companies the ‘initial investing period’ is seven years.
The change in approach gives a slightly longer period of time for ‘knowledge intensive’ companies to meet the requirements, and is to be welcomed.
The updated guidance can be found below:
Thanks to Philip Hare, Chair of EISA’s Tax and Technical Committee for this update.