For a fund to qualify as a knowledge-intensive approved EIS fund, it needs to meet specific conditions set out by HMRC. 80% of investments in a KI fund need to be into “Knowledge-intensive” companies.
The government wants more investment to go into Knowledge-intensive (KI) EIS businesses,
so it has made it even more attractive:
1) Simplified income tax planning, with one tax certificate (EIS5) and full qualification in
a single tax year
2) An increased annual maximum of £2m for KI EIS funds means that you can
effectively manage very large income tax, IHT and capital gains tax liabilities.
Many of the technical rules for qualifying EIS companies are the same as KI EIS, but there are
some important differences:
• Money invested can only be used for new shares, not those which exist already
• Investment must be high-risk
• Raised funds must be used to deliver growth such as increase in revenue, customer base
and employees not to provide cash flow to cover pre-existing expenses
• Companies cannot have been trading for more than seven years (extended to 10 years for
KI companies)
• Companies cannot be controlled by another company
• Businesses must have a permanent establishment in the UK
• Companies can have a maximum of 250 employees (extended to 500 for KI companies)
• Gross assets cannot exceed £15million prior to investment or £16million immediately
afterward
• KI EIS funds invested must be deployed within two years
• Companies cannot raise more than £5million in EIS investment annually or £12million
overall (raised to £20m for KI companies)
As standard, investors can fund up to £1.0million in an EIS fund or business each year.
However, that amount can increase up to £2.0million if investment over £1.0million is made
into knowledge intensive companies. Knowledge intensive companies are those which meet
one of each of these sets of conditions:
Innovation condition or
- At time of investment
- Within 10 years business using or exploiting the innovation
Skilled employee
- 20% skilled employees
- Skilled means holding and using a Masters degree or above